Fixed-rate savings: is it worth locking in now?

Savings rates are the healthiest they’ve been in two years. The best one-year fixed accounts pay around 5.15%, and the best five-year deals pay around 5.37%, according to Moneyfacts’ best-buy tables. The average one-year fix was 4.41% at the start of October, its highest since September 2024.

So is now the time to lock your money away? It depends on what the money is for, and on a few things most people don’t check.

Why fixed rates have gone up

Banks price fixed savings accounts on where they think interest rates are heading, using the same markets that set government borrowing costs. Those costs have climbed this year, and in September long-term government borrowing costs reached their highest levels in decades.

Inflation is part of the reason. Prices rose 3.5% in the year to September, up from 3.1% in August, mostly because of fuel. Many economists expect the Bank of England to raise rates from 3.75% at its next decision on Thursday 5 November.

The case for fixing

• You beat inflation, for now. At 5.15%, £10,000 earns about £515 in a year. With prices rising at 3.5%, that money is growing in real terms.
• You know exactly what you’ll get. If rates fall later, as some economists expect in 2027, your rate stays put.
• It’s a big gap over easy access. The average easy access account paid around 2.5% this summer. On £10,000 that’s about £250 a year, roughly half what the best one-year fix pays.

The case for waiting, or not fixing at all

• Rates could keep rising. If inflation stays high, fixed rates could go higher still, and you’d be locked in below them.
• You usually can’t get at the money. Most fixed accounts don’t allow withdrawals until the end. Some allow it with a penalty, and some not at all.
• Inflation could overtake your rate. If prices rise faster than your fixed rate, your money loses value even while it earns interest.

A middle way: don’t fix everything

You don’t have to choose all or nothing.

1. Keep your emergency money in easy access. Three to six months of essential spending should be somewhere you can reach it the same day. Don’t fix it.
2. Split the rest across different lengths. For example, some in a one-year fix and some in a two-year fix. Something matures every year, so you’re never fully locked in and you can take whatever rates are on offer then.
3. Only fix money you won’t need before the end date. If you might need it for a house move, a car or a tax bill, choose a term that ends before then.

Don’t let good rates stop you investing

When a bank will pay you 5% with no risk, investing can start to feel unnecessary. It’s an understandable reaction, but for money you won’t need for years, it can be an expensive one.

• Cash is for the next few years. Money you’ll need within about five years usually belongs in cash, where its value can’t fall.
• Investing is for the long term. Over long periods, shares have usually beaten cash. Barclays’ long-running Equity Gilt Study found UK shares beat cash in about nine out of ten 10-year periods since 1899. They can also fall, sometimes sharply, and you could get back less than you put in.
• High rates don’t last for ever. When your fix ends, the rates on offer may be lower. Long-term money left in cash then earns less, while money that’s invested has kept working.
• Don’t pause your pension. Pension contributions get tax relief, and stopping them to chase a savings rate usually costs more than it earns.
• Use your ISA for both. The cash ISA limit is staying at £20,000, after the Budget scrapped the planned cut. You can split your £20,000 allowance between cash and investments however suits you.

A high savings rate is a good reason to keep your short-term money in a better account. It isn’t a reason to stop investing for the long term.

The tax traps to check first

• Your Personal Savings Allowance. Basic-rate taxpayers can earn £1,000 of interest a year tax-free, higher-rate taxpayers £500, and additional-rate taxpayers nothing. At today’s rates, £10,000 at 5% uses up the whole higher-rate allowance.
• Interest paid at the end lands in one tax year. If a three-year fix pays all its interest when it ends, it all counts in that year. £20,000 at 5% for three years earns around £3,150. Paid in one go, most of that could be taxed. Paid each year, it’s about £1,000 a year. Check how often your account pays interest.
• Tax on savings goes up in April 2027. The rates rise by 4 percentage points, to 24%, 44% and 49%.
• A fixed cash ISA keeps the interest tax-free. You can put up to £20,000 a year into ISAs, and after the Budget all of it can still go into cash if you want.

Also check that your money is protected. The Financial Services Compensation Scheme covers up to £120,000 per person, per bank. Brands owned by the same bank share one limit. My free guide shows which banks share: peterkomolafe.com/fscs.

The Budget on 28 October kept the cash ISA limit at £20,000 and raised tax on savings interest from April 2027, as above. Here’s everything else the Budget changed.

Correct as of 23 October 2026, with Budget changes added on 31 October 2026. Best-buy rates change daily. Tax rates shown apply to savings income across the UK. Investments can fall as well as rise.