Focus on: Earn a market-leading 3.80% for two years with AA
There's good news for savers as the AA has launched a two-year fixed rate bond that pays a market leading 3.80% for two years.
The account, which is exclusive to MoneySupermarket, has a minimum investment of just £1 and a maximum of £5million, but is it the right account for you? Let's take a look...
What's the deal?
The AA two-year Fixed Rate Savings Account, which is only available through MoneySupermarket, offers a market leading interest rate of 3.80% (AER) on savings of up to £5million.
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It comes with a fixed rate of interest for the two-year term, so you know exactly how much your money will earn. Interest is calculated daily and credited to the account annually from the anniversary date of the first deposit.
After opening the account with your initial deposit, you can pay in further funds in - although only when the issue remains open.
An account can be opened with just £1 and up to £5million can be deposited, but if you are thinking of investing a large lump sum, keep in mind that only the first £85,000 will be protected under the Financial Services Compensation Scheme (FSCS).
As well as the eye-catching interest rate, another feature of this account is that, unlike many fixed rate bonds on the market, you are permitted to make withdrawals should you need access to your cash.
However, as you may expect, any withdrawals are subject to a fee, the amount of which is determined by how long you have left to run on the fixed term.
As the bond nears maturity the AA will contact you and go through a number of options on where next to house your savings. If don't take any of them, your money will automatically be re-deposited into a variable rate easy access account at the end of the two-year term.
Although withdrawals can be made on the account, they can only be made via postal application and - as we have mentioned - are also subject to a withdrawal charge. This charge currently stands at 180 days' interest that would apply to the amount withdrawn during the first year - or 90 days' interest during the second year.
The charge is taken from the account balance so, depending upon when you make the withdrawal, you could actually get back less than you initially deposited.
And when it comes to making payments into the account, although you can top up your balance while the issue remains open, the paperwork required may well mean that in practice you don't have time. In this case, it's best to pay the maximum you can afford into the account in the first instance as this could be your fixed and final balance for the next two years.
This account could be an ideal option for savers with a sizeable amount to put down - perhaps transferred from another savings account.
You can then leave your money tied in for the full two-year term to take full advantage of the generous interest rate.
However, even though the minimum investment is just £1, the account is unlikely to be suitable for new savers looking to gradually build up a nest egg.
Similarly, although withdrawals can be made, the fees for doing so are quite prohibitive and so this is not the best option if there is any possibility that you need to get your hands on your cash.
The fact that you can make withdrawals is an unusual feature for a fixed rate bond - but it's still not flexible and charges will apply. If you do feel that you will need access to your money, you will be better off opening an easy access account with a decent interest rate.
The current market leader is the Coventry Building Society Telephone Saver account which offers an interest rate of 3.25% (AER). This includes a bonus of 1.25% for the first 12 months.
Although withdrawals on this account are unlimited and can be made without penalty, you must withdraw (and pay in) a minimum of £500 at any one time.
Another option could be Santander's eSaver Issue 5 which comes with a competitive interest rate of 3.20% (AER)and also has a minimum investment of just £1.
However, this interest rate includes a sizeable bonus of 2.70% for the first 12 months so you will have to keep an eye on when this bonus period is due to end and transfer your money to another account that will offer a greater return.