Bonus rates vs fixed rates
What's the best option for your savings?
Enticed by a headline-grabbing temporary bonus rate or considering fixing on a guaranteed rate? We look through the pros and cons of the two savings options.
Cashing in on the bonus | Checking your rate | Fixing on a deal | What will you decide?
Bonus rates are normally available on instant access savings and cash ISAs. At the end of the tax year, also known as ISA season, bonus rates are often out in force on cash ISA accounts, as providers seek to attract new customers. A bonus rate is a temporary, interest rate boosting addition to a savings account. So the basic rate of interest may be the Bank of England Base Rate, say 0.50 per cent (at May 2011), but the account is offering 3.00 per cent, because there is an additional 2.50 per cent bonus for 12 months. While this is a temporary uplift for savings, if you don’t transfer to a new account after 12 months your savings could be sitting in an account offering a rate at a market low. |
Any bonus rate on offer should be for a minimum of six months, though they are normally for 12 months. It is best to check what the bonus rate is and when it ends before committing your savings.
Whether the provider will tell you when the interest rate changes may depend on the type of account you hold, so you will not always be told your interest rate has fallen. Although, the high street banks committed in 2010 to printing interest rates on statements or providing rate information to customers.
When it comes to savings, many people suffer from inertia, and, if you don’t think you will want to be moving savings around, looking for a fixed-rate account may be a better option for making the most of your savings.
Provider | Account | Interest Rate (AER) | Term | Apply |
---|---|---|---|---|
RCI Bank » | Freedom Savings Account | 1.30% | Instant Access | More Info > |
MARKET LEADING. Earn 1.30% gross/AER. Instant Access. No notice periods. Unlimited payments and withdrawals. Pay in from £100. RCI Bank are protected up to a total of €100,000 by the FGDR, the French deposit protection scheme. Manage account online. | ||||
Ford Money » | Flexible Saver | 1.22% | Instant Access | More Info > |
Earn 1.22% AER variable interest. Interest can be paid monthly or annually. Open an account singly or jointly. Minimum deposit £1. Unlimited deposits and withdrawals permitted. FSCS Protected | ||||
AA Savings » | Easy Saver | 1.15% | Easy Access | More Info > |
1.15% gross/AER. Instant Access. Free withdrawals and no notice period. Deposit from £100. Includes a fixed bonus of 0.95% gross fixed for the first 12 months. Quick and easy online application |
Gross is the interest you will receive before tax is deducted.
AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.
The advantage of opting for a fixed rate bond is that you will know what rate you are getting for your savings over a longer period of time. The most competitive savings rates are usually only available on the longer term accounts such as three year fixed rate bonds.
This type of account will guarantee you an interest rate, but there is little or no flexibility. Further deposits are normally not allowed, while withdrawals are penalised.
Shorter term fixed rates are available, with one-year, 18 months or two-year, if you would rather not tie your money up for too long.
Provider | Account | Interest Rate (AER) | Term | Apply |
---|---|---|---|---|
The Access Bank UK » | 3 Year Fixed Rate | 2.20% per annum | £5,000 | Apply Now > |
Earn 2.20% fixed interest - 3 year term - Minimum deposit £5,000 - No withdrawals permitted. FSCS Protected | ||||
The Access Bank UK » | 2 Year Fixed Rate | 2.02% per annum | £5,000 | Apply Now > |
Earn 2.02% fixed interest - 2 year term - Minimum deposit £5,000 - No withdrawals permitted. FSCS Protected | ||||
Vanquis Bank » | 4 Year Fixed Rate Bond | 2.40% per annum | £1,000 | Apply Now > |
Earn 2.40% gross/AER fixed for 4 years. Save £1,000 - £250,000. No withdrawals during the term. Individual or joint accounts available. Annual or monthly interest. FSCS Protected |
What option you go for, for your savings, will quite often depend on what your saving aims are and whether you anticipate needing access to your savings.
If you are looking for a level of income, a fixed rate bond paying interest on a monthly or quarterly basis may be a good option for you.
If you are saving over the short term for larger purchases and will be topping up your savings regularly, an instant access account may be a better option, but make sure you keep an eye on your interest rate.
Savings Accounts Provider Reviews
- AA Savings
- Abbey Savings Accounts
- Access Bank Savings Accounts
- Alliance and Leicester Savings Accounts
- Bank of Scotland Savings Accounts
- Barclays Savings Accounts
- Barnsley Building Society Savings Accounts
- Bath Building Society Savings Accounts
- Birmingham Midshires Savings Accounts
- Bradford and Bingley Savings Accounts
- Britannia Building Society Savings Accounts
- Cahoot Savings Account
- Cambridge Building Society Savings Accounts
- Chelsea Building Society Savings Accounts
- Cheltenham and Gloucester Building Society Savings Accounts
- Cheshire Building Society Savings Accounts
- Clydesdale Bank Savings Accounts
- Co-operative Bank Savings Accounts
- Coventry Building Society Savings Accounts
- Darlington Building Society Savings Accounts
- Dunfermline Building Society Savings Accounts
- First Direct Savings Accounts
- FirstSave Savings Accounts
- Ford Money Savings Accounts
- Halifax Savings Account
- HBOS Savings Accounts
- HSBC Savings Accounts
- ICICI Savings Accounts
- Intelligent Finance Savings Accounts
- Investec Bank Savings Accounts
- Ipswich Building Society Savings Accounts
- Julian Hodge Bank Savings Accounts
- Kent Reliance Building Society Savings Accounts
- Leeds Building Society Savings Accounts
- Lloyds Savings Accounts
- Manchester Building Society Savings Accounts
- Marsden Building Society Savings Accounts
- Melton Mowbray Building Society Savings Accounts
- Metro Bank Savings Accounts
- Monmouthshire Building Society Savings Accounts
- National Counties Building Society Savings Accounts
- Nationwide Savings Accounts
- Natwest Savings Accounts
- Newbury Building Society Savings Accounts
- Newcastle Building Society Savings Accounts
- Northern Bank Savings Accounts
- Northern Rock Savings Accounts
- Norwich and Peterborough Building Society Savings Accounts
- Nottingham Building Society Savings Accounts
- Post Office Savings Accounts
- Principality Building Society Savings Accounts
- Progressive Building Society Savings Accounts
- RBS Savings Accounts
- RCI Bank Savings Accounts
- Royal Bank of Scotland Savings Accounts
- Saffron Building Society Savings Accounts
- Sainsbury's Bank Savings Account
- Santander Savings Accounts
- Scarborough Building Society Savings Accounts
- Scottish Building Society Savings Accounts
- Scottish Widows Bank Savings Accounts
- Skipton Building Society Savings Accounts
- Smile Savings Account
- Standard Life Bank Savings Accounts
- Stroud and Swindon Savings Accounts
- Teachers Building Society Savings Accounts
- Tesco Savings Accounts
- Vanquis Bank Savings Accounts
- Vernon Building Society Savings Accounts
- Wesleyan Bank Savings Accounts
- West Bromwich Building Society Savings
- Yorkshire Building Society Savings Accounts