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The Bank of England Base Rate is a key benchmark against which the interest rate offered on savings accounts and mortgages is often measured in the UK. Following the first increase in the Base Rate in more than ten years at the beginning of November – and the expectation that further increases may follow – we explain why fixed rate savings accounts can still be a good choice in the right circumstances.
When you sign up for a fixed rate savings account, you can be certain of exactly how much interest you’ll earn.
Fixed rate accounts typically run for a period of one, two, three or five years and you can be sure that you’ll earn the interest rate advertised.
Usually the longer the term of the account, the higher the interest rate. However, you need to remember that you won’t be able to access your money at all during the fixed term or, in the case of a cash ISA, there could be a penalty for early withdrawal.
In contrast, with a variable rate savings account like an easy access account or a notice account, your provider can move the interest rate up or down at any time. Some easy access accounts also offer a temporary bonus, with the rate potentially decreasing significantly once this promotion ends.
If you’re keeping your money in an easy access account and waiting for interest rates to rise, you’re missing out on higher rates currently available in fixed rate accounts. Anticipating a rise in interest rates is often a guessing game and, while things might turn out to your advantage if rates go up, you could be disappointed if rates fall or if they don’t rise as quickly as you’d expected.
Only Base Rate tracker accounts guarantee a change in interest rate in line with a move in the Bank of England Base Rate. Alongside the Base Rate, banks also consider their lending ambitions and the rates available from competitors when they set their own interest rates.
At Paragon, we factor in a range of forecast market changes when setting the interest rates on our fixed rate savings accounts and these include the likelihood of a change in the Base Rate. Overall, we want our accounts to offer good, competitive value for the entire term of the account.
Fixed rate savings accounts remain a worthwhile consideration for anyone who won’t need to access their money for the account term. Of course, savers can also split their money between an easy access account and one or more fixed rate accounts to suit their individual needs and make the most of their savings.
Find out more about our fixed rate savings accounts.
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Head officeParagon51 Homer RoadSolihullWest MidlandsB91 3QJ
Paragon Bank PLC is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Registered in England number 05390593. Registered office 51 Homer Road, Solihull, West Midlands B91 3QJ. Paragon Bank PLC is registered on the Financial Services Register under the firm reference number 604551