What Are Fixed Rate Savings?
There are many ways to save money for your future, including fixed rate savings. What are fixed rate savings accounts? Well, they go by a couple of different names depending on where you live. In the US, they’re usually known as CDs (which is short for certificates of deposit) and in the UK, they’re known as fixed rate Cash ISAs (short for fixed rate cash individual savings accounts). In the UK these have the added benefit of being tax free. Not being taxed on money is always a great thing!
How do they work?
In either case, when you set up a fixed rate savings account — like the name suggests — you’ll earn a set interest rate that will usually vary depending on the term you agree to. (The term is the length of time you agree to leave the money in the account.) They are very easy to set up. Just contact the financial institution you’ve chosen to get started.
How much interest do you earn?
The amount of interest you earn in these types of accounts will vary depending on how long you agree to leave the money there. You can find out what is being offered by visiting the web site or location of the bank you propose to deposit the money at and reviewing their information. Usually you’ll receive a certain percentage of interest each year. The interest might be paid quarterly or annually. This interest is typically more than you would earn in just an ordinary savings account. That’s because the bank knows they will likely have your money deposited for the length of time you agreed to, and they’re willing to pay you more interest for that reason.
What’s the catch?
When you place your money in fixed rate savings, you do need to leave it there for the amount of time you agreed to. If for some reason you can’t avoid withdrawing the money (such as in the case of an emergency) you will have to pay a penalty. The penalty is often a certain number of months’ worth of interest earned — even if you haven’t actually earned it yet. So, that’s really the only catch.
All in all, fixed rate savings is a good way to earn a better-than-average interest rate on money you don’t intend to touch for a set period of time. Definitely check one out if that’s the type of account you are looking for.