Fixed-term savings accounts can be a helpful way to save for medium-term goals, such as a wedding or a second home.
In exchange for locking some of your wealth away for a set period, you could secure a higher interest rate than you’d receive from an easy access account.
Yet, when your account matures, your savings will normally stop accruing interest. So, you’ll need to decide where to move your money next. If you do nothing, your savings growth could stagnate, making it harder for you to achieve your financial goals.
According to figures in Which?, there is £73 billion in fixed-term accounts set to mature before the end of 2024. So, if you have a fixed savings account, it’s worth checking when your term ends.
Read on to learn more about what might happen when your fixed-term account matures and discover three useful options to consider when deciding where to move your money next.
When your fixed account matures, your bank is likely to move your money if you don’t
Your fixed savings account has a set lifespan. Once this ends, your provider is entitled to close your account and transfer your money elsewhere, if you fail to do so.
This could mean that your savings are moved into an account with a less favourable interest rate.
Indeed, in 2023, Which? revealed that where the account holder takes no action, 4 in 10 of the top one-year fixed accounts are transferred into an easy access account paying lower interest than the best fixed-rate product.
What’s more, half of the providers moved matured fixed savings into a current account, which typically generates little or no interest.
Alternatively, your provider might return your savings to the account you originally transferred money from. Or, they could lock your money away in another fixed savings account. This could lead to financial difficulties if you need access to your funds in the short term, such as if you were saving for a specific goal or your circumstances have changed.
So, while your provider should contact you before your account matures, you might want to check when your fixed term ends and allow plenty of time to explore the most beneficial options for you.
3 ways to make the most of your savings when your fixed-term account matures
Here are three options you could consider when your fixed-term account matures.
1. Open a new fixed-term savings account
Interest rates on UK savings accounts hit record highs in 2023 after the Bank of England (BoE) base rate was increased 14 times in a row in response to rising inflation. So, this time last year, you might have been spoilt for choice by the number of enticing fixed savings accounts available.
While interest rates are beginning to fall – the BoE reduced the base rate from 5.25% to 5% in August – reinvesting your money in a new fixed-term savings account may still be a useful option if you don’t need the funds right away.
For example, if you’re working towards a specific goal that is years away, locking your savings away in exchange for higher interest could be a sensible way to protect and grow your wealth until you need it.
Remember, if your provider automatically transfers your savings once your account matures, you may not be getting the best deal, even if your money is moved into another fixed-term account.
So, it’s important to take control of your savings by shopping around to find the most competitive rates with a fixed term that suits your circumstances and goals.
2. Consider investing your wealth instead
Investing your money has the potential to deliver higher returns than cash savings, thanks to the powerful effect of compound returns – generating returns on both your original investment and on returns you received previously.
The longer you hold on to your investments, the more time this “snowballing” effect could have to help them grow.
In contrast, the real-term value of your cash savings could be eroded by inflation over time. Indeed, MoneyAge has reported that UK savers lost £37 billion in real terms on their cash pots in 2023, due to higher rates of inflation.
So, if you don’t need the money from your fixed-rate savings account in the near future, you might want to consider investing it for long-term growth. We recommend that investments are made over a minimum of five years, so it’s always prudent to consider your financial goals before saving and investing your wealth.
3. Boost your pension fund
Another option for long-term investing is to pay a lump sum into your pension.
Saving into a workplace or private pension can be one of the most tax-efficient ways to boost your retirement fund.
You’ll automatically receive 20% government tax relief on any contributions you make up to your Annual Allowance. For 2024/25, this is £60,000 or 100% of your earnings, whichever is lower.
Your Annual Allowance might be lower if your income exceeds certain thresholds, or you have already flexibly accessed your pension.
If you’re a higher- or additional-rate taxpayer, you may be able to claim an additional 20% or 25% tax relief on your self-assessment tax return, making your pension an even more attractive option for long-term saving.
What’s more, your pension funds will be invested and could grow over time, as explained above.
Research published by IFA Magazine reveals that nearly one in two adults in the UK are worried about running out of money in retirement. So, if you have such concerns, using the money from your matured fixed-rate savings account to boost your pension fund could provide invaluable peace of mind.
Get in touch
If you’d like help reviewing your current saving strategy and planning how to make more of your wealth, we’d love to hear from you.
Please get in touch by emailing info@lloydosullivan.co.uk or call 020 8941 9779 to see how we can assist you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Workplace pensions are regulated by The Pension Regulator.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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