If your
fixed rate savings account is about to mature then there's a good chance you're in for a nasty shock.
As recent as a year ago there were a handful of accounts paying well over 7% AER, but the well-documented base rate cuts have meant that savers will be lucky to get half that rate today.
This drop in rates could have severe consequences for savers, especially those who are reliant on their savings for income.
"Until now some savers will have been somewhat sheltered from the low rate environment, with their cash locked away generating excellent returns,” says Moneysupermarket banking head Kevin Mountford.
“But these savers are about to come down with a bump; some will find the interest paid on their savings has dropped by as much as 7.9%.”
What are your options?
If your account is set to mature, you have a number of options available to you.
First, you should make use of your
ISA allowance in order to protect as much of your money from the tax man as possible(remember that the cash ISA limit has been raised to £5,100 for over 50s this year.
If you are intent on locking your money away once more, it's essential you give a lot of thought to the fixed rate account you choose, as the best paying account may not be the best deal.
Banks want to hold onto your money
That may seem like a strange thing to say, but the top paying accounts often require you to lock away your savings for up to five years.
Given that savings rates may well rise again in the coming months, locking yourself into a relatively low rate now may well prove a costly mistake (read more about the perils of long term savings
here).
As a result, it might be worth opting for a one year account with a slightly lower interest rate, thus affording you the opportunity to switch again when rates look a little better.
For those of you unwilling to accept a sharp drop in income, you could consider
investing your money on the stock market. This does of course come with increased risk, and you may actually lose your funds.
Keep an eye on the rate
"It will be interesting to see whether or not these savers look to riskier investments, such as equities backed vehicles, in order to maintain returns,” says Mountford at Moneysupermarket.
“Those that choose to stick with the fixed rate bonds market will find some solace in several two year fixed rate deals offering over four per cent - still low compared to the highs of last summer, but probably much higher than AER after maturity.”
"The golden rule for anyone coming to the end of their fixed rate bond deal is to pay attention to the rate they are getting, and switch to a new deal as soon as the interest rate drops off.
“If they allow their cash to languish in low interest paying accounts it could cost them hundreds of pounds in lost interest every year.”
