Savers rush into fixed rate deals without thinking it through

After savings rates fell to a pitiful low last year, many savers have since leapt at the chance to secure more healthy rates for their savings by committing them to fixed rate deals. In fact, a new report from uSwitch.com suggests that 9 million consumers have locked away £131 billion in fixed rate savings accounts in the last 12 months

According to the report, one in four consumers have opened 2 accounts, investing an average of £14,237, and 87% of these consumers chose a fixed rate account stated that they did so because it was the only decent rate around at the time.

But now, as the economic downturn continues to put a strain on finances, 6% of savers already regret locking their money away. Almost one in ten people – 800,000 consumers – have already made an average withdrawal of £3,738, and 36% of these incurred a penalty of £132 each, costing almost £40 million in total.

Of those who were forced to make withdrawals, 32% needed it to pay their household bills, 15% found their income had been reduced and 6% lost their jobs. uSwitch.com now predicts that a further 1.7 million savers (19%) will have to access their money early.

Rumina Hassam, savings expert at uSwitch.com, said:

“Fixed rate savings accounts can offer consumers some really competitive returns, but the reality of this extra interest can be harsh. Almost half of the accounts available do not allow consumers to access their cash under any circumstances which, in a climate of recession and redundancy, this is a dangerous situation for some people. The devil really is in the detail as far as fixed rate savings are concerned. Even if consumers are allowed to make withdrawals, the extra interest earned could be completely wiped out by the penalties incurred.”

“Consumers that might need to access their money should think really carefully before investing in a fixed rate savings account. Some deals offer more flexibility than others but the general rule of thumb is that accounts with limited access and longer investment terms will offer the highest rates. Also, with the base rate expected to creep up again over the next year and savings rates likely to folow suit, longer term fixed rates may not be the best option.”

If you would like to ensure you secure the best possible rate for your savings, but don’t necessarily want to tie your money in long term, TotallyMoney.com can help. Visit http://www.totallymoney.com/banking/ now to compare great deals on bonds, ISAs and regular savings accounts. When you’ve decided on the right deal for you, just click Apply to be taken through the application process.