A new savings account offered by PCF Bank is offering 2.6% AER – but it comes with a staggering seven-year fixed-rate term.
The rate, paid on balances from £1,000 to £250,000, is one of the highest currently available to savers and matches inflation (measured by the consumer price index), which has stayed at 2.6% for the second consecutive month.
Nevertheless, locking your savings up until 2024 still comes with risks. Here, we explore the pros and cons of fixing your savings for such a long time.
Fixed-rate accounts of five years or more
The longer you’re willing to fix your savings for, the better rates you’ll typically be able to access.
PCF Bank is one of only a handful of providers offering fixed terms of more than five years, according to Moneyfacts data. Shawbrook Bank’s seven-year account offers savers 2.4% AER on balances between £5,000 and £2m, while United Bank provides a seven-year fixed-rate account with 1.95% AER on balances between £2,000 and £1m.
PCF Bank also tops our Which? Money Compare five-year savings account tables with an account paying 2.5% on balances from £1,000 to £250,000. Click to visit Which? Money Compare and learn more about this account.
The Which? Money Compare savings tables let you search hundreds of accounts from providers large and small to find a great savings rate based on quality of service as well as cost and benefits.
Pain for commuters with latest inflation figures
While the consumer price index remained steady at 2.6%, the retail price index (RPI), which includes items such as mortgage repayments, rose to 3.6% in July.
This month’s RPI figure is key, as it is used to calculate the annual rise in regulated rail fares. Commuters will see prices rise for anytime and season tickets, and some off-peak fares.
Alex Hayman, managing director of Public Markets at Which?, said: ‘This price hike will be a kick in the teeth for the majority of passengers who already feel they aren’t getting value for money for their train services. Commuters are forking out more and more money for their tickets but are still struggling with delays, overcrowding and dirty carriages on a daily basis.
‘The Government has promised to put passengers first. So it must make sure that the new rail ombudsman delivers a step change in how passenger complaints are tackled.’
Will interest rates rise?
The Bank of England base rate has been sat stubbornly at its all-time low of 0.25% for over a year. Interest rates on savings accounts are down across the board as a result.
It’s impossible to accurately predict whether the base rate will change in coming years. Savers who lock their money into long-term accounts could end up being stuck with a poorer return if it rises.
That said, not many people would have predicted in 2009 that the record-low base rate would have persisted for the number of years it has.
PCF Bank does not permit early withdrawals on its seven-year account, so customers would need to be comfortable committing their money at the current rate for the full term.
If it’s likely you’ll need access to cash savings before this time, a more flexible account – or one with a shorter term – may suit you better.
Alternatives to fixed-rate savings accounts
Savers with smaller balances will be able to access better rates by putting their money in a high-interest current account. Nationwide currently offers 5% AER on balances up to £2,500, while Tesco Bank will pay 3% on balances up to £3,000. Our current account tables highlight the best deals.
Regular savings accounts are a useful option for those with small balances who can afford to drip-feed money into their account each month. Many of the best deals are only available to existing current account customers though. See the Which? Money Compare regular savings account tables for more information.
However, if you’re considering saving over this timeframe, taking on some additional risk by investing in the stock market could yield inflation-beating returns. The value of your savings can go down as well as up, but the longer you are in the market, the better the chance you have of riding out the highs and lows of investing.
A stocks and shares Isa is a useful starting point for investors. Gains are made tax-free, and in 2017-18, you can save as much as £20,000 into a stocks and shares Isa.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.