Fixed savings rates hit 5.34%. So, lock in or wait?

If you have money sitting in a savings account, now could be a good time to check exactly how much interest you’re earning.

Top fixed-rate savings accounts are now paying well over 5.00%, with one paying 5.34% – the highest we’ve seen in years.

But with some experts expecting savings rates to rise further, should you lock in a good rate now, or wait in the hope of getting an even better deal?

Why does it matter?

A fixed-rate savings account allows you to lock your money away for a set period — typically anywhere from six months to five years — in return for a guaranteed rate of interest.

The attraction is obvious. You know what rate you’re getting and, unlike an easy-access account, that rate won’t fall if savings rates subsequently drop.

The best rates currently available are significantly higher than the average. The average new one-year fixed savings bond was paying 4.41% this month, while some one-year deals are offering more than 5.00%. Five-year fixed bonds are currently available at up to 5.34% (you’ll find that account here, along with our other top savings account recommendations).

But there’s a catch: with a fixed savings rate, you generally have to lock your money away. Some accounts won’t let you get at your money at all until the term is up, while others will allow you to close the account and withdraw your cash, but will penalise you with reduced or zero interest paid.

So that makes the decision more complicated.

If interest rates rise, you could find that you’re stuck earning 5.00% while new savings accounts are paying far more. On the other hand, if rates fall, locking in 5.00% now could prove useful.

What should you do?

Some economists expect the Bank of England to raise interest rates later this year, which could push savings rates higher. But nobody knows exactly what will happen to interest rates over the next few months, and with global events currently causing so much uncertainty, it’s possible that anything could happen.

However, you don’t necessarily have to choose between locking everything away and leaving everything in easy access. One option is to split your savings.

You could put some money into a competitive fixed-rate account now, while keeping some in an easy-access account. We’ve listed the best of both types of accounts here. Taking a blended approach gives you the benefit of locking in a strong rate while retaining access to some of your cash if you need it — and the opportunity to take advantage of better rates if they appear.

It’s particularly important not to lock away money you’ll need for emergencies or upcoming expenses.

Before fixing your savings, check:

• The interest rate — don’t just look at the headline rate; check the AER.
• How long your money will be locked away.
• Whether you can access your money early and what penalties apply.
• Whether you can add more money later. Some fixed-rate accounts have a limited window in which you can make further deposits.
• Whether the account is covered by the FSCS, and make sure you understand how much of your money is protected.
• Whether you could use a Cash ISA instead, particularly if you’re likely to pay tax on your savings interest.

And don’t assume that because your savings account was competitive when you opened it, it still is today.

Check what your savings are actually earning

If you haven’t reviewed your savings rate recently, now is a good time.

Visit our Best Cash Savings recommendations page to check what your money could be earning and compare it with other available rates.

You don’t have to lock all your money away for five years to benefit from today’s higher rates. The important thing is to know what you’re currently earning, what access you need and whether there’s a better option for your circumstances.

With rates changing and the best deals moving quickly, a few minutes checking your savings could be worth hundreds of pounds in extra interest over time.