You can close a fixed term savings account before the term ends, but the bank will usually charge you a penalty
A fixed term savings account locks your money in for a set period — typically six months to five years — in exchange for a higher interest rate than you'd get in a regular savings account. When you close it early, you break that contract. Most banks will let you do this, but they charge a fee to compensate for the interest rate they promised you. The penalty is usually calculated as a number of months' worth of interest, or sometimes as a percentage of your balance.
The exact penalty depends on your bank and the terms of your specific account. Some banks charge three months of interest; others charge six. A few charge a percentage of the balance instead — often 0.5% to 1%. The earlier you close the account, the larger the penalty tends to be. If you're only a few weeks away from the end of the term, some banks waive the fee entirely or charge a much smaller one.
Before you close the account, contact your bank and ask what the penalty will be. They can tell you the exact amount. This matters because sometimes the penalty is larger than the interest you've earned so far, which means you'd actually get back less than you deposited.
Key Takeaways
- Most fixed term accounts charge a penalty if you withdraw money before the term ends, usually calculated as several months of interest.
- The penalty amount varies by bank and by how much time is left on your term — ask your bank for the exact figure before you close.
- Some banks charge no penalty if you're very close to the end of the term, so check whether waiting a few weeks would save you money.
- Once the term ends, you can withdraw your money without penalty, though the bank may automatically move it to a new fixed term account.
How the penalty is calculated
Banks use two main methods to calculate early withdrawal penalties. The most common is interest forfeiture — you lose a set number of months of interest. If your account earns 4% annually and you close it three months early, you forfeit three months' worth of that interest. On a £10,000 balance, that's roughly £100.
The second method is a percentage-based penalty, usually 0.5% to 1% of your balance. This is less common but can be steeper if you're closing a large account. A 1% penalty on £50,000 is £500, which is much more than three months of interest would be.
A few banks use a hybrid approach: they charge the greater of either the interest forfeiture or the percentage penalty, whichever costs you more. Always ask your bank which method applies to your account before you close it.
When it makes sense to close early
The penalty is worth paying only if you genuinely need the money. If you're closing because you found a better interest rate elsewhere, do the math first. Calculate the penalty, subtract it from your balance, and see what interest rate you'd need to earn elsewhere to break even before your original term ends. Often you won't break even, which means you're better off leaving the money where it is.
If you have a genuine emergency — job loss, unexpected medical expense, urgent home repair — the penalty may be worth it. In that case, the money is more valuable to you now than the interest you'd earn by keeping it locked away. But if you're just impatient or tempted by a slightly higher rate, the penalty usually makes early closure a bad deal.
One exception: if your bank is offering you a penalty-free withdrawal window, take it. Some banks allow you to withdraw without penalty during a specific period — often a week or two around the anniversary of the account opening. Check your account terms or ask your bank whether you have this option.
What happens to your money after you close
Once you close the account, the bank transfers your remaining balance (after the penalty is deducted) to your nominated account, usually within one to three business days. The money goes to whatever account you specify — a current account, another savings account, or an account at a different bank.
If you don't specify where the money should go, the bank will typically send it back to the account you originally funded the fixed term account from. Check your bank's closure process to confirm this, because you don't want the money sitting in an unexpected place.
What happens if you do nothing when the term ends
When your fixed term account reaches its end date, you have options. Some banks automatically roll your money into a new fixed term account at the current interest rate — which may be higher or lower than what you were earning. Others move it to a regular savings account, which usually pays much less interest. A few banks straightforward hold the money and wait for you to tell them what to do.
Check your account terms or contact your bank to find out what their default behaviour is. If you don't want your money automatically locked away again, you may need to contact them before the term ends and tell them to move it to a different account instead. Some banks give you a grace period — usually a few days or a week — during which you can withdraw without penalty or move the money without it being automatically renewed.
Comparing the cost of closing early versus waiting
Before you close, work out whether waiting until the term ends would cost you less. If you have three months left and the penalty is three months of interest, you're paying the same amount either way — but if you wait, you at least earn that interest first. If the penalty is six months of interest and you only have three months left, closing early costs you more than waiting.
The calculation changes if you're moving the money to a higher-paying account. If you can earn significantly more interest elsewhere, and the penalty is small, closing early might make financial sense. But this is rare — most fixed term accounts are competitive enough that the penalty outweighs any gain from switching.
Frequently Asked Questions
Can I withdraw some money without closing the whole account?
Most fixed term accounts don't allow partial withdrawals. You either leave the money untouched or close the entire account and pay the penalty. Some banks offer a small penalty-free withdrawal allowance — typically 10% of the balance once per year — but this is uncommon. Check your account terms or ask your bank whether partial withdrawal is an option.
What if I've already earned more interest than the penalty costs?
The penalty is deducted from your balance regardless of how much interest you've earned. If you've earned £200 in interest but the penalty is £300, you lose money overall — your balance shrinks by £100 after the penalty is applied. The interest you've earned doesn't offset the penalty; it's a separate calculation.
Do I have to pay tax on the interest if I close early?
Yes. The interest you've earned is taxable income in the year you earned it, even if you close the account and pay a penalty. The penalty doesn't reduce your tax liability. If you're a basic rate taxpayer and your savings interest is below your personal savings allowance, you won't owe tax anyway — but if you're higher rate, you'll owe tax on the full amount of interest earned.
Can I move a fixed term account to a different bank without closing it?
No. You can't transfer a fixed term account to another bank while keeping the term active. You have to close it at your current bank (and pay the penalty), then open a new fixed term account at the new bank. Some banks offer switching services for current accounts, but these don't explore to savings accounts.