Which? found that unless savers instruct otherwise, money left in four out of 10 of the top one-year fixes will be moved into an easy-access account paying lower interest than the best fixed-rate product. While half of the providers transferred the money into a current account - which in most cases means the cash will then earn little or no interest at all.
With rates on fixed accounts now falling, savers can't afford to be complacent with their nest eggs. Here, Which? reveals the cost of savings inertia and how people can avoid leaving their cash idle for too long.
What happens when fixed savings mature?
When you open a fixed-rate savings account, double-check the terms and conditions. The small print will usually explain what happens once the term ends or 'matures', including ways to withdraw the money or reinvest it.
Even if you missed these details when you initially took out the account, the bank should get in touch directly to discuss your options before maturity. In the event that you don't let the bank know what you want to do next - either because you missed the emails or forgot to reply - the provider will take a variety of approaches.
Move to easy access
Some banks will move the lump sum into a different savings account, such as an instant-access deal. While this makes withdrawing your money easier, these types of accounts tend to pay considerably less interest than fixed-rate deals.
Which? examined Moneyfacts data to find out how common this practice is. Out of the top 10 accounts with the highest interest rates, we found JN Bank, Al Rayan Bank, Charter Savings Bank and Gatehouse Bank all roll the money over into one of their easy-access accounts.
Out of the four top providers that have this policy when bonds end, JN Bank and Al Rayan Bank have the biggest difference in rates between their one-year fixes and easy-access accounts.
While JN Bank's one-year fix pays 5.65% AER, easy access savings earn just 3.76% AER. That's a difference of 1.89 percentage points.
Savers with smaller deposits are offered even worse rates with Al Rayan Bank. Its one-year fix currently pays 5.7% EPR (expected profit rate), compared to 4% EPR on its instant access for deposits over £5,000. However, that plummets to just 1% EPR on savings less than that amount.
Locked away again
In other cases, the funds will be transferred into a savings account of the same length as the one that matured. It means your money will be locked away for another long period of time and you won't be able to switch to a higher rate elsewhere. We found Kent Reliance was the only top 10 provider to do this.
However, Sarah Coles, head of personal finance at Hargreaves Lansdown, says there is usually a cooling-off period if you realise soon after the money has moved and want to get hold of the cash.
Back to where it came from
Our analysis found that the majority of accounts in the top 10 (five out of 10) will pay the money back into the account you transferred the cash from in the first place.
The trouble is that if you don't reinvest the money after it lands back in your account, it's likely you'll be earning little or no interest at all on your lump sum.
The longer the bond, the bigger the risk
Bonds lasting more than a couple of years could easily slip savers' minds and our analysis showed these products were more likely to have a policy to push funds into a lower interest account upon maturity. We found funds held in six out of the top 10 five-year fixes are transferred into either an easy access or variable rate 'holding account' when the term is up.
What switching inertia could cost you
Savings rates have skyrocketed over the last two years, hitting highs in 2023 not seen for 15 years. But with inflation falling and the Bank of England base rate frozen at its current level, interest on fixed accounts is now falling.
According to Moneyfacts, the average one-year fixed bond has now dipped to 5.36% AER, as of 1 November - the first time it has dropped since April 2021. The average longer-term fixed bond has also fallen for a consecutive month to 5.02%. These are the biggest month-on-month falls since December 2020.
Savers whose bonds have matured should take action now to grab the best high-interest deal before rates drop even further. Failing to do so could potentially cost hundreds of pounds.
For example, someone opening a one-year account that pays today's average rate, with a deposit of £10,000, will earn £549 over the course of 12 months. If your money is moved to an easy-access account and you're lucky enough to get the current average rate of 3.18% AER, you'd still be £226 worse off than if you'd opened an average one-year fix.
Find out more:How to keep track of fixed savings bonds
Keep a list
A good way to keep track of all your financial accounts is to make a list of the accounts you have now along with their policies. Make sure you keep all important paperwork in one place so you can easily find information and contact details when you need it in future.
Check the small print
Remember to also check the small print before you open an account so you're fully aware of what happens when the bond matures. If you're happy with the setup, then make a note in your diary of the date the term ends or set an alert on your phone a couple of weeks before. You can then start planning what you want to do with the cash and move the funds somewhere that suits you best.
Consider a savings platform
Finally, if you are spreading your savings around and opening multiple accounts, then consider signing up to a savings platform. These websites not only help you source market-leading accounts, but once you're registered, you'll only have one set of login information to remember. And to ensure your savings don't languish in a low-paying account - the platform will usually get in touch to remind you when any bonds are due to mature.
However, the convenience offered by savings platforms comes with a few caveats. Because savings platforms work with a set number of banks and building societies, you could easily miss a top rate offered by a provider not listed on the website.
Also, watch out for fees. While some platforms such as Raisin and Aviva Save are free to use, others charge a 'platform fee' for their services. That's often taken as a cut of the interest offered, done before displaying the rates on its site. Others, like Akoni, take a percentage of your savings - how much varies though.
Find out more:How do I find lost savings?
If you know which bank or building society held your account, contact them directly and ask how you can make a claim. They may also have paper forms available.
However, if you know you have money squirreled away but can't remember where you put it, then the My Lost Account service can help you search for forgotten savings pots from banks, building societies and National Savings and Investments (NS&I).
The service, which is a joint venture by the British Bankers’ Association, the Building Societies Association and NS&I, can take up to three months to complete, but getting started is straightforward and free.
Find out more:source https://www.which.co.uk/news/article/fixed-rate-savings-what-happens-when-your-bonds-mature-aVFVD6G8vFuc