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Should you lock up your savings for seven years?

Shawbrook Bank has launched a long-term fixed-rate account

A new account offered by Shawbrook Bank promises a 2.2% AER with a seven-year fixed-rate term. 

The rate, paid on balances from £5,000 to £2m, is one of the highest currently available to savers.

But is fixing your interest rate until 2024 a good idea? Here, we explore the pros and cons of locking up your savings for such a long period.

Fixed-rate accounts of five years or more

Typically, the longer you’re willing to forego access to your cash savings, the better rates you’ll be able to get.

Shawbrook is one of only two providers offering fixed terms of more than five years, according to Moneyfacts data. The other is United Bank, which provides a seven-year fixed-rate account with 1.95% AER on balances between £2,000 and £1m.

However, it may be possible to get a better return while only investing your money for five years.

Paragon Bank currently tops the Which? Money Compare five-year savings account tables with an account paying 2.25% on balances from £1,000 to £100,000.

Click here 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.

Will interest rates rise?

The Bank of England base rate is currently at an all-time low of 0.25%. As a result, interests rates on savings accounts are down across the board.

There’s no way of knowing whether the base rate will change in coming years. However, savers who lock their money into long-term accounts risk being stuck with a poorer return if interest rates start to rise.

Shawbrook does not permit early withdrawals on its seven-year account, so customers would need to be comfortable with committing their money at the current rate for the full term. You should also consider whether your circumstances might change – if you’re likely to need access to your savings in the near future, a more flexible account option 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 another option for those with small balances who can afford to drip-feed money into their account each month. However, many of the best deals are only available to existing current account customers. See the Which? Money Compare regular savings account tables for more information.

If you’re willing to take a bit of risk, consider investing your money in a stocks and shares Isa or with a peer-to-peer lending company.

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.

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