Making the most of the fixed-term savings opportunity

The Bank of England recently elected to hold the base rate steady at 5.25% for the fifth time, continuing a record period of high interest to combat inflation. But with CPI, the most common measure of price change over time, dropping from 10.4% in February ‘23 to 3.2% in March ‘24, experts are predicting that the base rate will be slashed in the coming months to encourage growth and stimulate the economy.

The base rate is the rate of interest that a central bank, such as the Bank of England, pays to commercial banks that hold money with them. As such, it influences both the rate banks charge people to borrow money as well as the returns they receive on their savings. When the base rate goes up, borrowing money becomes more expensive, but savings products should also pay out at a higher rate of interest.

Those in the know will have already taken full advantage of the current interest rate environment, shopping around for the best returns and diversifying their savings portfolio to maximise the short- and long-term benefits. However, with a cut to the base rate likely in the short term, those able to save should maximise the opportunity while it remains.

As the interest rate goes down, so will the amount that savings providers can offer new and existing customers—any product with a flexible rate will undoubtedly lower rates as soon as the base rate reduces. Those already locked into fixed-rate fixed-term savings will be protected from any immediate impact due to the nature of these products.

What is the fixed-term opportunity?

When scanning for the best savings deals, you may have noticed that some of the highest returns are offered by fixed-rate, fixed-term products. These products lack the flexibility of easy-access products but compensate for this with a greater yield.

Chetwood’s fixed-rate fixed-term saver accounts, offered via its SmartSave brand, have offered inflation-beating returns since October 2023, consistently providing one of the most competitive rates on the fixed-term market.

Some savers may have been reluctant to commit to a fixed rate for a long period over recent months due to the likelihood of higher rates becoming available elsewhere during the agreed term. However, the widespread predictions that the Bank of England and other central banks will soon start cutting their base rates have made this less likely.

As explained above, the base rate is predicted to fall in the coming months. In that case, savings products with flexible rates will almost certainly lower their return as well, making easy-access solutions less enticing over 12 months. Meanwhile, fixed-term products that still offer returns similar to the base rate are guaranteed to deliver a consistently high yield whether or not the base rate (and by association future savings returns) go down. This makes fixed-rate, fixed-term savers an appealing choice for those looking to prolong the superior returns of today into the near future.

Making the most of the opportunity

The time for the fixed-term opportunity is now. Any savings deposited into a fixed-rate fixed-term product today will be ringfenced against falling returns that are likely to follow the predicted base rate cut. Fixed-term solutions have greater potential to maximise returns for savers looking to plan for the next one to five years, but those looking to benefit need to act before the Bank of England announces a cut.