If you want to earn a higher interest for your day-to-day savings, consider opening a fixed-rate savings account. It is an investment account where you deposit your lump-sum money for a fixed period of time and for a fixed interest rate. No additional deposits or withdrawals are allowed and interest is earned quarterly or annually depending on the terms and conditions of the account. This article is a guideline to fixed-rate savings accounts.
Features of fixed-rate savings accounts
One-off deposit amount Fixed-rate savings account requires a once-off deposit lump-sum amount to open this account which has a fixed term period for example from six months to five years. There are no additional deposits to the account during the fixed-period term. No money withdrawals The money can only be accessed on maturity which is on the expiry of the term period. Fixed-interest rate Fixed-interest rate is determined when you open the fixed-term account and it varies with the savings account term period. The best fixed rate is earned when the maturity period is long, thus the longer the maturity period, the higher the savings interest. The interest is paid either quarterly, annually or monthly depending on the terms of the account.
Why opening a fixed-rate savings account
It is an investment Fixed-rate savings account is a form of investment where your savings are locked and paid out after specific period of time with an interest. If you have extra money from your budget every month, this is the type of investment that you can choose where the interest rates are high and which enable discipline with regards to your expenditure pattern. To enjoy higher interest rates Fixed-rate bonds offers high and best bank interest rates as compared to your normal interest savings account. The payout interest rate varies with the term of the savings account.
Disadvantages of fixed-rate savings accounts
No withdrawals and additional deposits
There are no withdrawals of money from this account until the maturity date, thus you may resort to borrowing money from your friends or the bank if your day-to-day expenses increase or if you want to pay for emergency expenses.
Also, no further deposits are allowed into the account which makes it difficult to increase your investment lump-sum.
Minimum deposit amount Sometimes, you may not be able to raise the required minimum deposit account for you to open a fixed-rate savings account.