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Ask an expert: ‘Can I cancel my fixed-term savings account?’

Fixed-rate savings accounts may mean locking away your cash

Every week, Which?’s money experts answer your financial queries. You can submit your questions to money-letters@which.co.uk, or via our Facebook or Twitter pages.

Q. I recently opened a fixed-rate savings bond with Harrods Bank. When I realised that it was due to be acquired by another provider (Tandem Bank), I decided to cancel the agreement. I didn’t think this would be a problem as I’d only opened the account a few days before. However, I was told that cancellation wouldn’t be possible. Is this correct?

Submitted via Which? Money magazine.

A. Taking out a fixed-rate bond requires you to lock away your money for a set period of time. Some – but not all – providers offer an ‘out’ in the form of a cooling-off period or early exit fee.

Which? explains whether providers are required to allow you to cancel and whether you’ll be charged a fee.

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Do fixed-rate savings products have to have a cooling-off period?

Under laws introduced in 2004, many financial products come with a cooling-off period if you buy them at a distance – meaning online or over the phone.

Under these regulations, you must have 14 days from the date of purchase to cancel without incurring a penalty (and 30 days for pensions and life insurance).

Cash Isas, including fixed-rate products, fall into this category – the provider must let you cancel within 14 days.

But these rules don’t apply to applications for a fixed-rate savings account or bond, meaning you don’t have a ‘right to cancel.’ Generally, once you’ve made your first deposit, your provider can hold you to their terms and conditions.

Find out more: Can I cancel a financial product I bought online?

Do fixed-rate bonds allow early withdrawal?

Once you’ve deposited your money into a fixed-term product, you may not be able to withdraw it until the term ends.

This applies to both savings bonds and fixed-rate Isas.

In some cases, providers may allow you to exit your fixed-rate bond early, but this is at their discretion – you’ll need to check the terms and conditions before you open the account.

If you are allowed an early exit, you’ll need to pay a penalty fee and may also have to repay any interest you’ve earned. These fees should be set out in the information you receive before you open the account.

We reviewed the highest-rate two-year savings bonds, and none of the top five allowed early withdrawal before the term expired.

Product Interest rate Early withdrawal allowed? Minimum deposit Maximum deposit
Atom Bank 2 year Fixed Saver 2.1% No £50 £100,000
Union Bank of India 2 year Fixed Rate Deposit 2.05% No £1,000 £1m
Axis Bank UK Ltd 2 Year Fixed Term Deposit 2.04% No £1,000  £200,000
OakNorth Bank 24 Month Fixed Term Deposit 2.02% No £1,000  £250,000
 The Access Bank UK Sensible Savings 2 Year Fixed Rate Bond 2.02% No £5,000  £500,000

Source: Which? Money Compare two-year fixed-rate savings accounts

For fixed-rate Isas, savers have a little more flexibility, with four of the five highest-rate providers allowing early withdrawals – but the penalties can be steep.

If you haven’t earned enough interest to cover the penalty charge, you may get back less money than you put in.

Carefully weigh up your options before deciding to make an early exit: while you might earn more interest elsewhere, the penalty charges may mean you’re worse off overall.

Product Interest rate Early withdrawal allowed? Minimum deposit Maximum deposit
Al Rayan Bank 24 Month Fixed Term Deposit Cash Isa 1.7% No £1,000 N/A
Virgin Money 2 Year Fixed Rate Cash E-Isa Issue 306 1.66% Yes, but charged 90 days’ loss of interest on the amount withdrawn £1 £2m
Virgin Money 2 Year Fixed Rate Cash Isa Issue 340 1.66% Yes, but charged 90 days’ loss of interest on the amount withdrawn £1 £2m
Aldermore 2 Year Fixed Rate Cash Isa 1.65% Yes, but charged 180 days’ interest £1,000 N/A
Post Office Online 2 Year Fixed Rate Isa Issue 11 1.6% Yes, but Breakage Charge equal  to 180 days’ loss of interest £500 N/A

Source: Which? Money Compare two-year fixed-rate Isas

How do I choose the right fixed-rate bond?

Fixing your rate for a prolonged period can be appealing, especially if you’re concerned that interest rates may drop in future.

But before you commit to locking away your cash, think carefully about your finances, both now and in the future.

Questions to ask yourself include:

  • How much do I want to deposit? It can often make sense to split your savings between fixed-rate bonds and easy-access accounts so that you can access your money if the unexpected happens.
  • Where can I get the best rate? Your current account provider won’t necessarily offer you the best rate on your savings, so it pays to shop around. Keep in mind that inflation is currently outpacing more interest rates, so your money be losing value in real terms over time.
  • How long can I afford to lock up my cash? Some fixed-rate bonds offers terms of up to five years, but think carefully about your financial future. If you’re planning a major lifestyle change – like having a child, buying a house or switching jobs – you may need access to your savings.
  • What are the fees and penalties for withdrawing? You never know when an unexpected expense might hit you so it’s important to check whether you’ll be able to withdraw early, and what charges you might face.

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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