More than a million savers could face a shock

More than a million savers could face a shock drop in interest rates in the next two months as fixed-rate accounts come to an end

 
Over a million (1,165,652) savers could see their savings interest rate drop as a surge of fixed rate accounts reach their maturity date. Shawbrook analysis of CACI data shows that £34.3 billion (£34,353,887,782) is currently sitting in fixed-rate accounts that are due to mature in the next couple of months. Without taking action, savers with maturing accounts could lose out on hundreds of pounds as their balance is moved into a standard account, meaning the interest rate could change.

Adam Thrower, head of savings at Shawbrook said: “March and April are traditionally months where many will look to lock away their savings for the next year, which may include ISAs, to maintain a tax-efficient savings pot,  or fixed-rate bonds. When fixed period ends, savers’ money will typically be moved into a different product. To avoid being on a reduced rate, savers should take action, which may mean reinvesting with their current bank on another fixed product with a higher returns rate, or looking to transfer their savings to a better-paying account elsewhere.”

To help a million savers with maturing accounts make the most of their money, Adam Thrower, head of savings at Shawbrook, has provided a to-do list for savers.
 

Adam’s to-do list for those with maturing accounts:

 
Do something, anything: First of all, you will be notified in advance of your account reaching maturity, and the provider will ask what you’d like to do with it. Once it has hit the maturity date the key thing is to do something: any action is better than no action at all. It is very likely your money will be transferred to regular savings account with a different interest rate. This could mean the rate you get paid is lower than the rate you had been getting paid. To protect against this, it is important to be aware of what is happening to your money so you can act to move it if you need to.
 
Think tax: With rates as high as they are, and with the personal savings allowance remaining at £1,000 (for a basic rate taxpayer), it is possible to breach the tax-free threshold for interest payments. This could cost you hundreds a year. Thankfully, you can use ISAs, which means you can save £20,000 per year, per person tax-free. Currently, £22,000^[1] in a high-paying one-year fix could put a basic rate taxpayer over the threshold, and this drops to £11,000^[2] for higher-rate taxpayers. So, think tax and choose the account type carefully to ensure best returns.
 
To fix or not to fix: Another thing to consider when moving your money from a matured account is if you should move to another fixed account or go with Easy Access. This will depend on how often you’ll need access to your money. Those needing short notice access might consider an Easy Access account, while those who are saving for something longer term might consider fixed term products. It is also worth noting the different rates and seeing which would give you the most bang for your buck.
 
The power of compounding: Whatever type of account you end up choosing, think about the power of compound interest. The key is to re-save both the initial deposit or balance you fixed and the interest earned on the balance so you can maximise your earnings. For example, say you saved £10,000 in an account paying 4.6% AER (gross), over 12 months you would have earned £460 in interest, re-saving the full amount (deposit and interest) could see you earn £481 over the next 12 months. So over 24 months you could make over £900 by just moving your money and reinvesting the 1^st year’s interest – not bad for a couple of minutes work. And, if you aren’t saving for anything in particular you can rinse and repeat the following year: earning interest, on interest, on interest.
 
Set yourself a reminder: If you decide it is best to put your money away for the longer term, it would be worthwhile making a note of when your new account will end. Putting a diary reminder in your phone, or writing it on the family calendar will mean you will be much better prepared for this process the next time your account is due to mature.