Is a Fixed Rate Savings Account Right for You?

Fixed rate savings accounts are a safe and secure way to grow your money over the short term.

Fixed rate savings accounts offer a guaranteed interest rate for a set period of time, usually ranging from one or two years. The interest rate is set and is not affected by changes in other areas of the financial sector, like fluctuations in the prime rate.  These accounts provide steady, predictable growth and can be an excellent short term investment. In addition to being a safe and secure way to manage a bonus or other surplus revenue, many banks and institutions may allow the account owner to use the money in fixed rate accounts as collateral for a short term loan.

Fixed rate accounts will have an interest rate that is better than a regular savings account.  This rate will vary from institution to institution, and may change over time so it is important to research the market.  The best rates can be found through the Internet or at smaller banks. Larger banking institutions may have fixed rate accounts, but they do not necessarily advertise them; contact their financial planning department to find out.

If you prefer to work with your regular bank, and they do not offer a rate comparable to what you can find online, talk with them. Banks compete for customers just like every other enterprise.  There may be some give and take negotiations involved.  You may have to increase the minimum deposit or monthly amount paid to the account, or you may not be able to access the funds until the end of the accounts term, but most banks will work with their clients in order to keep a good customer happy.

There are some potential limitations to a fixed rate savings account.  One, the bank may require that you establish a feeder account.  This type of account automatically transfers a specific amount into the savings account during its term; you will, of course, be able to add additional funds if you wish, but you will not be allowed to reduce the amount of money transferred without some penalty on your part. Also, the funds that are paid into this fixed rate account may not be available until the account reaches the end of its term.  If funds are available, in most cases, you will only be allowed to withdraw the interest. Be sure to go over all the details concerning the account with the banking representative before you open a fixed rate account.