Fixed Term VS Instant Access Savings

Saving money is an important part of achieving both short and long-term financial goals. Two common options for getting returns on your savings are Fixed Term Deposits and Instant Access Savings Accounts.

 This article will compare the key features and benefits of Fixed Term and Instant Access Savings so you can determine where to put your hard-earned money.

FIXED TERM SAVINGS ACCOUNTS

A Fixed Term Account, also called a Term Deposit, pays a guaranteed fixed interest rate for a set period of time or "term", for example, 1 year, 2 years, etc. The rate is usually higher than Instant Access Savings Accounts.

Benefits of Fixed Term Savings

Higher interest rates: You lock in an interest rate that’s typically higher than instant access savings rates.

No temptation to withdraw: Your money is inaccessible until maturity so there’s no dipping into it.

Regular interest pay-out options: Some accounts pay interest monthly; others pay on maturity.

Drawbacks of Fixed Term Savings

Locked in: Your money is inaccessible until the maturity date, if you withdraw early you may have to pay a penalty.

Inflexible: You cannot add more funds once the term starts.

Lower liquidity: It takes time to access funds in an emergency.

Rate uncertainty: Future deposit terms may have lower rates.

Interest rates: You will not benefit from any increase in interest rates during the fixed term.

INSTANT ACCESS SAVINGS ACCOUNTS

Instant Access Savings provide flexible access to your money while earning interest. You can deposit and withdraw funds anytime.

Benefits of Instant Access Savings

Instant access: You can withdraw money anytime without penalty.

Add money freely: There’s no limit on depositing more money whenever you want.

Often good rates: Many online accounts offer over 1.5% AER currently. For example, iFAST Global Bank is now offering 4.25% AER on GBP. (This rate is no longer available. Please refer to our latest article or visit our website for the current interest rates.)

Earn monthly interest: Many instant access accounts pay interest monthly.

Variable rates: Interest rates may increase so your earnings may also increase.

Drawbacks of Instant Access Savings

Temptation to withdraw: Easy access makes it tempting to dip into savings.

Variable rates: Interest rates fluctuate so your earnings may decrease.

Lower returns: Instant Access Accounts offer lower returns compared to Fixed Term Deposit rates.

Which Account is Better for You?

If your priority is flexibility and liquidity, Instant Access Savings are likely better for you as they work well as emergency funds.

If you want savings that earn higher guaranteed returns, choose a Fixed Term Account. These are great for long-term goals like saving for a dream car, house, or retirement. Locking your money away for 1-2 years in a Fixed Term Deposit can earn significantly higher interest to grow your savings.

However, you can choose to have the two types of savings to reap the benefits of each one:

·         Instant access for short-term goals and emergencies

·         Fixed term deposits for longer-term goals like retirement

Splitting your funds between the two the account types provide the perfect mix of access and earnings. The ideal ratio of money to devote to each savings account depends on your personal savings goals and timelines.

As you evaluate the options, consider when you’ll need the money, target interest rates, and account limitations. This will help point you towards the right savings accounts for your needs. With smart strategy, you can grow your money effectively!

Having a savings account, whether Fixed Term Deposit or Instant Access, can help you achieve your financial goals.

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