Fixed savings rates have climbed to 5%, a milestone not seen since 2024, offering savers a significant opportunity to increase returns by locking their money away for a set period. The highest available rate is currently offered by Investec on a three-year fixed rate bond.
For those preferring shorter terms, one-year fixed rate accounts are also approaching this peak. Challenger bank Oaknorth provides a best-buy one-year fix at 4.86%.
These accounts are distinct from tax-free Individual Savings Accounts (ISAs). Interest earned above an individual's personal savings allowance is subject to taxation. For instance, higher-rate taxpayers with £10,000 deposited in Investec's offering could exceed their £500 annual personal savings allowance.
ISAs allow individuals to save up to £20,000 annually without tax implications. Current competitive ISA rates include an easy-access option from Trading 212 at 4.71%, which includes a 1.11% 12-month promotional boost. After this period, savers are advised to compare options for continued favorable rates. Fixed-rate ISAs can offer higher returns, such as RCI Bank's two-year fix at 4.80%.
According to Moneyfacts, a financial data provider, average savings rates across all account types, including easy-access and ISAs, have reached 3.59%, the highest point since May 2025. This increase means that opting for top rates over average ones could result in hundreds of pounds more in interest annually.
"For the first time since 2024, the market-leading fixed bond now pays a 5 per cent return," stated Caitlyn Eastell, a personal finance analyst at Moneyfacts. She added that for a saver with £20,000, fixing at 5% for three years could yield approximately £3,000 in interest, compared to about £2,240 based on current average new savings rates.
Access Restrictions with Fixed Accounts
Choosing a fixed-rate savings account means that funds are inaccessible for the entire term, though some accounts offer more flexibility in emergencies. It is crucial to verify withdrawal and account closure policies before committing.
Investec's three-year fixed bond does not permit withdrawals or account closure until the term ends, and it does not include a 14-day cooling-off period for changes of mind. Oaknorth's one-year fix also prohibits withdrawals, but the bank may allow them in cases of financial hardship.
Some top fixed-rate ISAs offer slightly more leniency. Tandem Bank's one-year fixed-rate ISA at 4.67% requires account closure and a penalty equivalent to 90 days' interest for early access. RCI Bank's 4.80% two-year fixed-rate ISA permits withdrawals before the term ends, subject to a charge of 180 days' interest.
Tax Considerations
Interest earned from non-ISA savings accounts is taxable. Basic rate taxpayers have a £1,000 personal savings allowance, while higher-rate taxpayers have a £500 allowance. Additional rate taxpayers have no allowance. HM Revenue and Customs typically adjusts an employee's tax code to collect tax on interest. Self-employed individuals must declare interest income on their tax returns.