A fixed interest rate stays the same for the entire life of your account or loan
A fixed interest rate is an interest rate that the bank promises not to change. When you open a savings account or take out a loan with a fixed rate, the percentage you earn (on savings) or pay (on a loan) remains exactly the same from the day you open the account until the day you close it or the loan ends. The bank cannot raise it or lower it based on market conditions, economic changes, or anything else.
This is different from a variable rate, which can move up or down. With a fixed rate, you know exactly what you will earn or owe, no matter what happens in the wider economy.
Key Takeaways
- A fixed rate never changes once your account or loan is opened, so your earnings or payments stay predictable for the entire term.
- Banks set fixed rates based on current market conditions when you open the account, so rates vary depending on when you sign up.
- Fixed rates on savings accounts are usually lower than variable rates because the bank is taking on the risk of rate changes.
- Once a fixed-rate account is closed, you cannot reopen it at the same rate — you would need to open a new account at whatever rate the bank is offering at that time.
How banks set the fixed rate when you open an account
The bank decides what fixed rate to offer based on what is happening in the financial markets on the day you open the account. If interest rates in the economy are high, the bank may offer you a higher fixed rate. If rates are low, the fixed rate will be lower. The bank also considers how long you are committing to keep your money with them — a longer commitment usually means a slightly higher rate.
Once you agree to that rate and open the account, the bank is locked in. They cannot change it, even if market conditions shift the next day. This is why the rate you see advertised today may be different from the rate someone else gets next week.
Why fixed rates on savings are usually lower than variable rates
Banks offer lower fixed rates because they are taking on risk. When you lock in a fixed rate, the bank is betting that interest rates in the economy will rise. If they do, the bank loses money because they promised to pay you a lower rate than they could be earning elsewhere. To protect themselves, they offer fixed rates that are lower than what they might offer on a variable rate account.
This trade-off works in your favor if rates fall — you keep earning the same rate while others earn less. But if rates rise, you will earn less than people who chose a variable rate account.
Fixed rates on loans work the opposite way
On a loan, a fixed rate protects you instead of the bank. When you borrow money at a fixed rate, your monthly payment stays the same for the entire loan term. You will not face surprise increases if interest rates in the economy rise. This makes it easier to budget because you know exactly what you owe each month.
The bank charges a higher fixed rate on loans than they would charge on a variable-rate loan, because they are taking the risk that rates will rise and they will lose money. You are paying for the security of knowing your payment will never change.
What happens when your fixed-rate account or loan ends
When a fixed-rate savings account matures (reaches the end of its term) or when you close it, that rate is gone. If you want to keep your money in a savings account at the same bank, you would need to open a new account. The bank will offer you whatever rate they are currently advertising — which could be higher or lower than what you had before.
The same applies to loans. Once your fixed-rate loan is paid off, any new loan you take out will be at whatever rate the bank is offering at that time. You cannot extend a fixed rate or lock it in again at the old number.
Fixed rates versus variable rates: the main difference
The core difference is predictability. With a fixed rate, your earnings or payments never change. With a variable rate, they move up and down based on market conditions. Fixed rates give you certainty but usually at a lower rate. Variable rates offer the possibility of earning more (or paying less) if the market moves in your favor, but they carry the risk of earning less (or paying more) if it does not.
Which one makes sense depends on your situation. If you want to know exactly what you will earn or owe, fixed is simpler. If you are willing to accept some uncertainty in exchange for the possibility of a better rate, variable might appeal to you.
How to find the fixed rate a bank is currently offering
Banks display their current fixed rates on their websites, usually on the page for savings accounts or certificates of deposit. The rate you see is the rate you will receive if you open an account that day. Rates can change daily, so if you see a rate you like, check whether the bank requires you to open the account immediately or whether the rate is may provide for a set period (like 24 hours).
You can also call the bank or visit a branch to ask what fixed rates they are currently offering. Be clear about what type of account you are interested in — the rate for a regular savings account is different from the rate for a certificate of deposit, even at the same bank.
Frequently Asked Questions
Can a bank change my fixed rate after I open the account?
No. Once you open a fixed-rate account, the bank cannot change the rate. That is the entire point of "fixed." The rate you agree to at opening is the rate you keep for the life of the account.
Is a fixed rate always better than a variable rate?
Not always. Fixed rates are better if you want certainty and if you think interest rates will rise. Variable rates can be better if rates fall or if you are comfortable with uncertainty in exchange for a potentially higher rate. It depends on your comfort with risk and what the market does.
What is the difference between a fixed rate and an introductory rate?
A fixed rate applies to the entire account. An introductory rate is a temporary rate that the bank offers for a limited time (like three months), after which the rate changes to whatever the bank's standard rate is at that time. Always read the fine print to see whether a rate is fixed for the life of the account or just for an introductory period.
If I close my fixed-rate account early, do I lose the rate?
Yes. Once you close the account, that rate is no longer yours. If you reopen an account at the same bank, you would get whatever rate they are currently offering. Some accounts charge a penalty for early closure, so check your account terms before you withdraw your money.
Do all banks offer the same fixed rates?
No. Different banks offer different fixed rates, even on the same day. Banks compete by offering different rates, so it is worth comparing what several banks are offering before you open an account. A difference of even 0.5% can add up over time.