Throughout 2022, nearly £50bn was locked away in fixed-rate bonds.
Those who locked their money away for up to a year will see their cash, and any interest they earned, returned to them over the coming months.
When a fixed rate ends, your cash goes into a holding account often earning little-to-no interest. And with inflation still sat in double figures, this is a problem for people who want to limit damage to their spending power.
What to do with your money next depends on your needs and how long you want to tie the money up for. Here are some of your options.
This article isn’t personal advice. If you’re not sure if something is right for you, seek advice. Inflation reduces the future spending power of cash.
1. Secure your emergency fund
No matter your goal, when your fixed rate matures, you need to make sure you have an emergency cash fund. If you’re working, we think you should hold three to six months’ worth of essential expenses in an easily accessible account. When you’re retired, you should hold one to three years’ worth. This will help cover life’s unexpected costs – from home and car repairs, to losing your job.
You’ll need to access this pot quickly if you need to, so easy access products, which allow you to withdraw in one working day are a good option that keep you earning interest.
2. Choose another fixed-rate bond
Next, consider your financial goals and when you want to reach them. If they sit within the next five years, it could be worth going back into a fixed-rate bond.
Right now, you can get a good deal in fixed rates. But while they could continue to rise, high interest rates won’t last forever. Savings providers predict what they think the Bank of England base rate will be in future when they set fixed rates.
Plenty of economists predict the Bank of England base rate to peak at 4.5% before dropping later in the year. If savings providers share this view, they’ll start dropping their rates soon.
Importantly, you won’t be able to see the peak of the rates until it’s passed, so you should consider whether you’re happy with rates as they stand now.
If beating inflation is your main aim, predictions that inflation could fall below 3% at the end of the year make a one-year fixed rate at over 4% look like an attractive prospect.
There’s also the question of the best possible period to fix your savings for. Typically, longer fixes reward you with higher rates, but currently five-year rates are offering similar interest to one-year rates.
However, if rates are nearing their peak, then if you don’t need this money for five years, a five-year fix could make sense.
In many cases, the right answer is a ‘portfolio’ approach. That’s where you break the cash into chunks depending on when you need it – saving in different fixed products for periods that make the most sense for your situation. This gets each portion of your cash working harder.
Saving through a cash savings platform means you can keep an eye on all these products in one place – making it far easier to manage multiple accounts.
Active Savings lets you view consistently competitive rates online from our banking partners on a huge range of terms. You can select the products that suit you in just a few clicks.
3. Consider investing
If your financial goals are five years away or more, saving isn’t always the best option. Investing could give you a better chance of growing your money over the long term if you are happy with the risks involved.
Over the last 100 years, investments have outperformed cash for 91% of the 10-year periods. Of course, there’s never any guarantee with investing and past performance isn’t a guide to the future.
Unlike with cash savings which are guaranteed, the value of investments goes up and down, and you could get back less than the amount you invest.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).
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