You may have seen news about rising interest rates in recent years and this could affect your finances in several ways. For instance, you may have seen an increase in your monthly mortgage payments. On the other hand, you could have benefited from more growth on your cash savings and certain investments.
If you want to maximise the interest on your cash savings, and you don’t need immediate access to the funds, you may use a fixed-term savings account. These accounts allow you to lock your savings away for a set period of time, often in exchange for a higher interest rate.
However, if you hold your savings in a fixed-term account, it’s important to pay attention to what happens when it matures. If you do nothing, the account provider will decide what happens to your wealth.
This could be likely to affect you in the future as Which? reports that £53 billion is sitting in fixed-term Cash ISAs, which are set to mature by the end of April 2025.
The provider could move your savings into an account with a lower interest rate if you do nothing
When your fixed-term account matures, the provider will typically decide what happens to your savings, and each organisation is different.
Research published by Which? in 2023 found that 4 in 10 of the top one-year fixed-term accounts automatically switched to an easy access savings account. These easy access options typically offer a lower interest rate than a fixed-term account. Additionally, half of the providers surveyed moved the savings into a current account, leaving them to earn little or no interest at all.
As such, if you do nothing when your fixed-term account matures, you could be missing out on potential growth on your savings in the future, especially as interest rates have fallen in recent months.
Be careful, because some providers may move your savings into a new fixed-term account, meaning your wealth could be locked away for a set period of time. While this could mean you continue to benefit from a better interest rate than you would in an easy access account, it may not be suitable for your goals. For example, if you plan to use the wealth to fund a holiday or a new car, you won’t want your savings locked away for another two years.
That’s why it’s important to take note of when your fixed-term account matures, so you can decide what you want to do with your savings.
Two options to consider when your fixed-term account matures
When your fixed term comes to an end, you may want to review your financial goals and decide on the most suitable ways to hold your wealth.
Here are two options to consider.
1. Search for a new fixed-term account
Global events including the Covid-19 pandemic and the war in Ukraine led to high inflation across the globe. In response, the Bank of England (BoE) increased its base rate – the interest rate that it charges to other financial institutions.
As a result, lenders increased their interest rates, meaning that borrowing was more expensive and savers benefited from higher growth. This encouraged consumers to reduce their spending and slowed price rises.
The strategy was successful and, after reaching a peak of 11.1% in October 2022, the Office for National Statistics (ONS) reported that inflation was 3% in the 12 months to January 2025.
While this is still above the BoE’s target of 2%, interest rates have started falling. The BoE reduced its base rate from 5.25% to:
- 5% on 1 August 2024
- 4.75% on 7 November 2024
- 4.5% on 6 February 2025.
Consequently, the interest rates on cash savings accounts have fallen and could continue to do so in the future.
According to Finder, the average interest rate on a one-year fixed-term Cash ISA was 5.48% in October 2023. By February 2025, this had fallen to 3.99%.
If you’re saving for short- to medium-term goals and don’t need immediate access to your savings, you may want to search for a new fixed-term account now.
On 5 March 2025, MoneySavingExpert reported that the best interest rate on a two-year fixed-term Cash ISA was 4.41%. Locking your savings away soon could mean you benefit from favourable interest rates before they fall further.
However, if you’re saving for an emergency fund, a fixed-term account might not be suitable. Additionally, if you plan to hold your wealth for a longer period, you may benefit from investing instead.
2. Invest surplus wealth instead
Holding some cash savings as an emergency fund or to save for short-term goals may be beneficial. However, when building wealth for the long term – a period of five years or more – investing could help you generate higher returns.
As discussed earlier, the highest interest rate on a two-year fixed-term Cash ISA was 4.41% on 5 March 2025. Yet, interest rates on cash savings could fall in the future if inflation comes down and the base rate reduces further.
By comparison, Business Insider reports that the S&P 500 has returned around 10.5% annually since its introduction in 1957.
While past performance doesn’t guarantee future returns, the historical data suggests that investing your wealth could help you generate more growth in the long term.
We can help you create an investment portfolio and generate the necessary growth to achieve your long-term goals.
Get in touch
If you need guidance about the most suitable ways to hold your wealth, we can support you.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.