Fixed rate savings: a stupid mistake

A small lesson learned that might be helpful to one of the few people that occasionally read this blog.

I’m in the middle of buying my first house. This is exciting and I feel lucky to be able to do this when so many people are really struggling.

But the excitement has been dulled a little by my own incompetence.

About nine months ago I was living in a different city. I had a plan to move (which I’ve now done) and then rent for around a year to get to know the area before buying.

I decided to put almost all of my cash savings into fixed rate savings accounts. I ended up using two: one fixed term bond through Raisin, and one notice account with Aldermore.

I chose them because they paid significantly better interest than the available easy access savers, and I was pretty certain that I wouldn’t be buying a place for at least a year so the risk of locking the money away was minimal.

Plus, for some reason I assumed that you could still withdraw earlier and merely lose your interest or pay a penalty to do so. 

Even if I thought there was a 20% chance that I’d need to access the money early, it was still a good value bet: an expected value of 80% of the fixed rate interest rate is higher than the easy access interest rates.

I’ve since found out that this was a mistaken assumption.

For both accounts you can’t withdraw the money early except in cases of real hardship.

To be fair, both providers make these terms clear. It’s just that my brain overwrote these black and white conditions with my own assumptions.

I’ve since spoken to a couple of sensible type people who had the same assumption.

So, just to re-state the most basic rule of personal savings that my arrogant ‘everything will be fine’ grammar school boy brain overwrote: don’t lock away money that you might need within a year.

Anyway, the result of all of this isn’t exactly life changing misery. It just means that my deposit is a bit smaller and I won’t have as much cash as I’d like to make changes to the home straight after moving in.

I’ve closed the gap a little bit by keeping as much cash from my take home pay as possible. Two tactics have helped with this: getting a 0% credit card to put all of my purchases on for the next few months, and putting a little bit less into investments this year.