What is a fixed rate savings account?

With fixed rate savings accounts you deposit your money and leave it untouched, knowing exactly how much interest you’ll earn. Sometimes called fixed term savings accounts, they could be ideal if you value guaranteed interest rates and don’t need instant access to your savings.

Depending on the current savings market, you may be able to get more interest with a fixed rate account than an easy access account. The trade-off? You won’t be able to withdraw your money early without facing penalties, so it’s best for savings you won’t need in the short term. Also, you won’t benefit if interest rates elsewhere rise while your money is locked away.

Before signing up, check the minimum deposit requirements as some banks ask for a lump sum upfront. Also, keep an eye on what happens when the term ends. Your money might roll into a lower-paying account, so bear that in mind when looking at your options.

How do I choose the right fixed rate savings account?

With so many fixed term saving accounts available, choosing the right one may seem daunting. But it’s just about finding the best fit for your savings goals and how you manage your money. Here are a few key things to mull over:

Interest rates

Some accounts offer higher rates, but they may only last for six months or a year. Check the rate, how long it is fixed for, and what it switches to at the end of the term.

Deposit requirements

Fixed rate accounts may require a lump sum upfront, with no option to add more later. Make sure you’re comfortable committing the full amount at the start.

Withdrawal restrictions

These accounts typically don’t allow early withdrawals, or they come with hefty penalties. Another option for fixed rate savings that allow access to your money at any time is a cash ISA, although these may also have withdrawal charges.

End-of-term options

When the fixed period ends, your money may roll into a lower-paying account. Check what happens next and maybe set a reminder to move your savings elsewhere when the term ends.

Remember, the best fixed rate savings account is one that matches your financial plans, not just the highest advertised rate. Taking the time to compare options ensures your money works as hard as possible.

Will I have to pay income tax on interest earned on my fixed rate savings account?

It’s usually possible to earn a decent chunk of interest on your savings before the taxman gets involved. That’s all thanks to a few helpful allowances.

If your total income (including savings interest) is under £12,570 a year, you typically won’t pay any income tax at all – that’s your Personal Allowance.

If you earn less than £17,570, you might also get something called the starting rate for savings. This could let you earn up to £5,000 in interest tax-free (though the amount goes down as your income goes up).

The Personal Savings Allowance (PSA) means most taxpayers can earn up to a threshold of interest before paying tax on it:

  • Basic rate taxpayers (20%): You can earn up to £1,000 in interest tax-free. To give you an idea, if your savings account pays 4.8% interest, you’d need just over £21,000 saved to reach the £1,000 PSA limit in a year.

  • Higher rate taxpayers (40%): Your tax-free limit is £500. You’d need around £10,500 saved to hit the £500 limit, based on receiving 4.8% interest.

  • Additional rate taxpayers (45%): Sadly, no allowance here.

So unless you’ve got a hefty savings pot or a high income, there’s a good chance you won’t owe any tax on your interest.

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Page updated on 13th November 2025, Reviewed by Richard Groom