High fixed rate or low instant access rate?

As the Bank of England reports that the average interest rates on instant access savings accounts (including current accounts), notice savings accounts and cash ISAs remained static in May, Fairinvestment.co.uk's chartered financial planner Sharon Bratley comments on where next for savers.

"The type of savings account that someone will choose at the moment will depend on their circumstances. The choices are between instant access accounts with rates lower than three per cent, or fixed rate accounts with rates of above four per cent for a term of at least two years.

"The problem facing savers is the fact that interest rates have bottomed out at 0.5 per cent, but no one knows just when interest rates will start to rise again.

"Instant access accounts allow savers to make the most of increasing interest rates, but in the mean time are offering interest rates that are well below the highs offered by fixed rate deals at the moment.

"However, savings providers are starting to recognise this by offering competitive rates on their two year fixed rate deals, whereas before the top rates were found on five year fixed deals."

Both the ICICI two year fixed rate account and the Birmingham Midshires two year fixed rate bond offer interest rates well above four per cent.

Mrs Bratley added: "Judging by the market at the moment, a two year fix may be the way to go, as it will take a while for instant access account rates to catch up and it could take at least a year for the Bank of England to start pushing interest rates up.

"However, people should make sure they compare a number of savings account deals before they choose the best one for them," Mrs Bratley concluded.