Savings rate fixed or variable: what suits your money?
· 4 min read · Spaarradar editorial team
A variable savings rate can change any day, a fixed rate is set for the whole term. What makes savings rates move, why nobody can predict them and how you as a saver can deal with that uncertainty.
Every saver chooses, knowingly or not, between two kinds of rate. A variable rate, which the bank may change whenever it likes. Or a fixed rate, which does not change for an agreed term. Which works out better you only know afterwards. What you can do beforehand: understand what makes rates move and spread your money so that you do not have to gamble.
Which is which
| Variable rate | Fixed rate | |
|---|---|---|
| Where | Instant-access account, notice account | Deposit |
| Who sets the rate | The bank, at any moment | Set when you open it |
| Access to your money | Straight away, or after the notice period | Only at the end of the term |
| If market rates rise | Your rate may rise along | You stay on the old rate |
| If market rates fall | Your rate falls along | You keep the higher rate |
The highest variable rate in the comparison is now 3.03% for instant access and 2.55% with a notice period. The highest fixed rate for one year is 3.40%.
What makes a variable rate move
A bank does not change its savings rate at random. Three forces are at work.
The ECB's policy rate
The European Central Bank decides what banks receive when they park money at the central bank. For a bank that is the alternative to everything it can do with your savings. If the ECB raises that rate, savings are worth more to banks and there is room for a higher savings rate. If the ECB lowers it, the opposite happens. Banks do not follow it one for one, nor straight away. The rate history shows how savings rates have moved over time.
Competition between banks
Savers who switch force banks to move along. Banks that few customers leave can afford to pay less. That explains the gap between the big banks, now at 2.00%, and the top of the comparison. How large that gap is over time is tracked in the savings rate index.
The bank's need for funding
A bank that is growing fast in mortgages or loans needs savings and pays more for them. Once it has enough, it lowers the rate or ends a promotion. That is why one bank can be at the top for months and then suddenly drop away, without anything having changed in the market.
Why predicting is pointless
We make no predictions about rates, and there is a reason for that. Rate decisions depend on inflation and economic growth, and those surprise even the people who make it their job. What is more, the market's expectations are already built into today's deposit rates. If the rate on long terms is lower than on short ones, the market usually expects a fall, and the other way round. So you cannot cheaply get ahead of something everyone already expects.
The useful question is therefore not what rates will do, but: what happens to my plans if rates rise, and what if they fall?
How to deal with the uncertainty
- Start with when you need the money. Money you need within a year belongs in an instant-access account, whatever rates do. Only money you can really do without qualifies for a fixed rate.
- Split. Fix a part and keep a part variable. If rates rise, the variable part benefits. If they fall, the fixed part keeps its rate. You are never entirely right and never entirely wrong.
- Build a ladder. With deposits of increasing terms a part comes free every year, which you lock away again at the rate of that moment. That way you also spread the moment of entry. Building a deposit ladder explains it, and the ladder planner works it through.
- Follow your variable rate. A variable rate needs upkeep. Put your account on your list and look at the rate changes: every increase and decrease we see is there the same day. If your bank drops away, you switch.
What a fixed rate costs you
Certainty has a price. With a deposit you usually cannot get at your money early, or only for a fee. If rates rise after you open it, you are tied to the old one. That is not a loss in euros, because you get exactly what was agreed, but it could have been more. If you understand that risk and can do without the money, a deposit mainly buys you peace of mind. The trade-off between the two forms is set out more fully in deposit or savings account.
Fixed or variable makes no difference to safety. Both fall under the same deposit guarantee: up to €100,000 per person per bank, interest included.
Not advice. Rates are gross and can change; the tables in this article show the position at the moment you open the page. How we calculate and check is described in the methodology.
