What is a 1-year Fixed Savings Account?

Fixed - word from wooden blocks with letters, fixed interest rates or costs concept, random letters around, top view on wooden background

Want to learn more about 1-year fixed-rate savings accounts? Our complete guide covers everything you need to know, from how they work to how they compare to other types of savings accounts.

What this guide covers:

How does a 1-year fixed-rate savings account work?
Pros and cons.
How do fixed-rate accounts compare to easy access savings?
Are fixed-rate accounts safe?
Alternatives to fixed-rate accounts
Will I pay tax?

How does a 1-year fixed-rate savings account work?

With 1-year fixed-rate savings accounts, you can only deposit money over an agreed period – in this case, 12 months.

The interest rate stays the same (it’s fixed) for 12 months, offering stability for savers. Also known as 1-year fixed-rate savings bonds, these accounts are ideal if you want to invest a lump sum, letting you know how much interest you’ll rack up from the start.

Once you’ve committed to a 1-year fixed-rate bond, you can’t withdraw money until the 12 months are up. So be sure to plan, and don’t deposit any savings you might need within the year.

What are the pros and cons of a 1-year fixed-rate account?

A 1-year fixed-rate savings account has both advantages and drawbacks. Whether it suits you depends on your financial goals. Here’s a quick look at the key points.

Pros of a 1-year fixed-rate savings account

Guaranteed interest rate. Your rate is locked in for the full term, so it won’t change.
Clear financial outcomes. You’ll know exactly how much you’ll earn by the end of the year, which makes budgeting and planning easier.
Protection from rate drops. If market interest rates fall, your savings won’t be affected because your rate is fixed.
Better rates. Fixed-rate accounts often offer higher interest than easy-access accounts. By agreeing to lock your money away, you can grow your savings faster.

Cons of a 1-year fixed-rate savings account

Limited access. You often can’t withdraw funds whenever you like. If you are able to take money out early, you may face penalties and lose some or all of the interest earned.
No benefit from rising rates. If market interest rates go up, your account won’t follow – your rate stays the same.
One-time deposit. Most fixed-rate accounts only allow a single deposit when you open them. You can’t add more money until the term ends. Always check any T&Cs to be sure.
Inflation risk. If inflation rises above your interest rate, the value of your savings may fall in real terms. Learn more about how inflation affects savings in our guide.

How do fixed-rate accounts compare to easy access savings?

Fixed-rate savings account	Easy access savings account
Money is locked in for a set time; early withdrawals may lose interest.	Withdraw money anytime without penalty.
Interest rate stays the same for the full term.	Interest rate can go up or down.
Usually one deposit at the start.	Add money whenever you like.
Often offers higher interest rates.	Usually lower interest rates.
Best for long-term goals when you won’t need the money.	Best for short-term goals or emergency savings.

What happens when your fixed-rate account matures?

At the end of the 12 months (the account’s maturity), the interest rate you agreed on is added to your balance. Now, you have a couple of options: you can withdraw your money (including the interest) or choose a new fixed-term bond and move your money there. A common approach by providers is to automatically move the balance to a lower/variable rate account and so it's important to be aware of this and take action to avoid any potential impact.

Can you withdraw money from a 1-year fixed-rate savings account early?

Many providers will let you withdraw your money from your 1-year fixed-rate savings account early. However, you’re likely to pay a penalty fee. Always check any T&Cs to be sure.

Are fixed-rate savings accounts safe?

Fixed-rate savings accounts in the UK are covered by the Financial Services Compensation Scheme (FSCS) which exists to protect your money.

Financial Services Compensation Scheme (FSCS)

The Financial Services Compensation Scheme (FSCS) is the UK’s deposit protection scheme, protecting deposits up to £120,000, or £240,000 for joint accounts.

You don’t need to do anything, as the FSCS will compensate you automatically. You can learn more on the FSCS website.

Alternatives to fixed-rate savings

There are a range of other savings options available if you don’t think a fixed-rate account is right for you.

Easy access savings accounts

If you want a savings account that lets you take out your money whenever you need it, without paying a penalty, an easy access savings account could be a good choice. You can put money in or take it out at any time.

Cash ISAs

A Cash ISA lets you earn interest tax-free. You can save up to £20,000 each year, and unlike other savings accounts, the interest doesn’t count towards your personal savings allowance.

What happens if interest rates rise during your fixed term?

If interest rates go up or down while your account is locked in, your rate won’t change. You agreed to a fixed rate at the start, so it stays the same until the end of the term, no matter what happens in the market.

Can I open a fixed-rate savings account with a small deposit?

Many providers let you open a fixed-rate savings account with a small deposit. The minimum amount varies, but some accounts start from as little as £1. Always check the provider’s terms to see what the minimum deposit is before you apply.

Will I pay tax on the interest from a fixed-rate savings account?

Interest from a fixed-rate savings account is generally taxable in the UK, but you may not need to pay tax if the interest falls within your Personal Savings Allowance (PSA), which depends on your marginal rate of tax. Basic-rate taxpayers have a £1,000 PSA, while higher-rate taxpayers have a £500 PSA, with additional-rate taxpayers having no PSA. Alternatively, you can open a fixed-rate Cash ISA to earn interest completely tax-free.