Savers usually have to lock their money away for at least a year to get the best interest rates, which are currently at close to 5 per cent.
But there is a little-known trick to getting the best rates, and still being able to access your money if you really need to.
Savers who want the comfort of knowing they can get to their money should opt for a fixed-rate Individual Savings Account (Isa), rather than an ordinary fixed-rate savings account.
That is because savers are entitled to switch or close their Isa whenever they choose, according to HM Revenue & Customs (HMRC) rules.
This right applies even to fixed-rate Isas and must be detailed in the terms and conditions of the account.
Access: Savers are entitled to switch or close their Isa whenever they choose, according to HM Revenue & Customs rules – this right applies even to fixed-rate Isas
Savers will usually have to pay a penalty for being able to access their money early. But they do enjoy the reassurance of knowing that they can get to their cash if there is an emergency.
In contrast, non-Isa fixed rate bonds do not allow you to withdraw your money early under almost any circumstances.
Savings providers will make an exception if you have a terminal illness, but rarely if you need your money because, for example, you have lost your job or you need your money for a home purchase.
Fixed-rate cash Isa providers will not let you withdraw money from your account, but they should allow you to close it or transfer your savings to another provider if you wish.
You will pay a fee, however. For example, Paragon Bank pays a top rate of 4.4 per cent interest on its one and two-year fixed rate Isas.
If you decide you need your money back before the end of the fixed-rate term, you can close your account or transfer your money elsewhere and will be charged 90 and 180 days’ interest respectively.
On savings of £10,000, that would amount to a penalty of £108 on 90 days or £216 on 180 days.
Halifax pays 4.2 per cent on its one-year fixed-rate cash Isa, and charges 90 days of interest if you close it early.
Similarly, its two-year and five-year versions pay 3.8 and 3.4 per cent interest respectively, and come with a 180-day and a whole year of interest penalty for shutting early.
If you think there is even a slight chance you could need to cash in early, you may prefer to opt for an account with a slightly lower rate that has smaller penalties for closure.
Virgin Money, for example, has one of the lowest penalties for closing a fixed-rate Isa early.
It charges two months’ interest on its one-year fixed rate Isa (paying 4.33 per cent) and 90 days on its two-year version (which pays 4.4 per cent).
Some accounts come with much higher penalties. For example, Santander’s one-year Isa pays 4.15 per cent, but charges four months’ interest for early closure, while its two-year Isa pays 4.2 per cent and charges the same amount of interest for early closure.
Few standard fixed-rate bonds allow you to get your money back early. Rachel Springall, finance expert at scrutineers Moneyfacts, says: ‘It is therefore vital that investors are comfortable with their initial investment and the length of a bond term.’
The top payers including Charter, Close Brothers Savings, United Trust Bank and Investec don’t let you make withdrawals or even close the account.
These pay more than 4.9 per cent on their one-year bonds with the top rate currently from Close Brothers at 4.96 per cent.
Fixed-rate bonds that do allow early withdrawals tend to offer lower rates.
For example, the highest one-year bond that does allow it is 4.2 per cent from Halifax.
But, if you close the account early, you would pay a penalty of 90 days of interest — which would amount to around £103 for every £10,000 that’s in your account.
Lloyds, Barclays, NatWest, HSBC and Marcus by Goldman Sachs will all allow you to close fixed-rate bonds early with a penalty.
Anna Bowes, from website Savings Champion, says: ‘On bonds where you can access your money, you have to put up with a much lower rate. This can be less than you can earn on easy-access accounts.’
Lloyds’ two-year bond pays 4.25 per cent — with a charge of 180 days’ interest if you depart early. This works out at £209 on each £10,000, effectively cutting your rate to 2.16 per cent in the year you close the account.
Barclays two-year Flexible Bond lets you take money out — you can make three withdrawals of up to 10 per cent of your balance. But the rate on offer is just 3.5 per cent.
Some cash Isa providers such as Paragon and Virgin will let you withdraw some of your money during the fixed-rate period rather than just closing the account completely, but you will be penalised with a loss of interest.
Barclays has one- and two- year fixed-rate cash Isas that allow you take money out three times during the term — but only up to 10 per cent of your balance each time. However, the rates are low at 3.6 per cent and 3.7 per cent respectively.
