Choosing the right account for your savings can make your money work harder and help you reach your goals faster.
Many savings accounts come with either a variable interest rate, or fixed interest rate. Understanding the differences between the two is important.
To help, we’ve taken a look at both so you can find the right savings account for you.
What is a fixed rate savings account?
With a fixed rate savings account, you lock away your savings for a set amount of time at a set interest rate. It’s also known as a fixed term bond. You may be able to choose how long your savings are locked away for, or it may be an amount of time set by the bank. This will depend on the fixed rate savings account and provider you choose.
| Advantages | Disadvantages |
|---|---|
| The interest rate may be higher compared to some instant access savings accounts. | If you access your savings before the end of the term, you may need to pay a fee. |
| The interest rate is fixed for the term of your account, meaning you know how much you'll earn. | If interest rates rise, your rate will remain the same for the rest of the term. |
| Interest can be paid directly into your account – so you can watch your savings grow. | You will not be able to add savings to your account during the term of the fixed rate. |
| You won't be able to dip into your savings, so it can reduce the temptation to spend. | You may need to put a minimum amount into a fixed rate savings account to open it. |
| Advantages | The interest rate may be higher compared to some instant access savings accounts. | The interest rate may be higher compared to some instant access savings accounts. |
|---|---|---|
| Disadvantages | If you access your savings before the end of the term, you may need to pay a fee. | If you access your savings before the end of the term, you may need to pay a fee. |
| Advantages | The interest rate is fixed for the term of your account, meaning you know how much you'll earn. | The interest rate is fixed for the term of your account, meaning you know how much you'll earn. |
| Disadvantages | If interest rates rise, your rate will remain the same for the rest of the term. | If interest rates rise, your rate will remain the same for the rest of the term. |
| Advantages | Interest can be paid directly into your account – so you can watch your savings grow. | Interest can be paid directly into your account – so you can watch your savings grow. |
| Disadvantages | You will not be able to add savings to your account during the term of the fixed rate. | You will not be able to add savings to your account during the term of the fixed rate. |
| Advantages | You won't be able to dip into your savings, so it can reduce the temptation to spend. | You won't be able to dip into your savings, so it can reduce the temptation to spend. |
| Disadvantages | You may need to put a minimum amount into a fixed rate savings account to open it. | You may need to put a minimum amount into a fixed rate savings account to open it. |
If you're an HSBC current account customer, you may want to look into aFixed Rate Cash ISAora Regular Saver account.
Calculate how much you could save over 12 months with a Regular Saver.
What is a variable rate savings account?
A savings account with a variable interest rate means the rate you receive when you open your account can change. Your bank will need to let you know in advance of this happening.
Some variable interest savings accounts can also be easy access, meaning you can dip into your savings if you need to.
| Advantages | Disadvantages |
|---|---|
| Variable rate savings accounts can be flexible – meaning you could move to a different account with better interest. | The variable interest rate on your account can change – meaning it can go up and down. |
| You may find a wider range of variable interest savings accounts to choose from compared to fixed rate savings accounts. | As the interest rate can change, you may not be able to plan ahead as accurately when compared to fixed rate savings accounts. |
| You can add to your savings whenever you want to keep them growing. | You may be getting a lower rate of interest compared to fixed rate savings accounts. |
| Advantages | Variable rate savings accounts can be flexible – meaning you could move to a different account with better interest. | Variable rate savings accounts can be flexible – meaning you could move to a different account with better interest. |
|---|---|---|
| Disadvantages | The variable interest rate on your account can change – meaning it can go up and down. | The variable interest rate on your account can change – meaning it can go up and down. |
| Advantages | You may find a wider range of variable interest savings accounts to choose from compared to fixed rate savings accounts. | You may find a wider range of variable interest savings accounts to choose from compared to fixed rate savings accounts. |
| Disadvantages | As the interest rate can change, you may not be able to plan ahead as accurately when compared to fixed rate savings accounts. | As the interest rate can change, you may not be able to plan ahead as accurately when compared to fixed rate savings accounts. |
| Advantages | You can add to your savings whenever you want to keep them growing. | You can add to your savings whenever you want to keep them growing. |
| Disadvantages | You may be getting a lower rate of interest compared to fixed rate savings accounts. | You may be getting a lower rate of interest compared to fixed rate savings accounts. |
It’s important to be aware of the terms and conditions of any savings account you open. With many savings accounts, you need to stick to these to make the most of any interest, or other benefits.
What next?
There are many reasons you may want to start saving. Opening a savings account, whether it’s fixed or variable rate, can help you achieve your goals.
This article provides general information and does not take into account the financial situation of the reader. For this reason, it must not be relied on as financial advice. All accounts are subject to terms and conditions.
Back to top Back to top of the page
