Best business bonds

Business savings bonds explained

Business bonds operate in much the same way as fixed rate bonds for personal use: they ask you to set aside a lump sum deposit for a pre-agreed length of time, and in return you’ll receive a fixed rate of interest, which won’t change during the term. You’ll be expected to leave the funds untouched during this time, with access rarely allowed. Even if withdrawals are permitted, you are likely to be penalised in terms of loss of interest or even closure of the account.

The trade-off is that you’ll know exactly how much interest you’ll receive on maturity, which can be useful for business planning purposes. The other advantage of this commitment is that interest rates tend to be higher on fixed rate business bonds than their easy access counterparts, though it’s important to compare the options thoroughly, as in the current market longer terms don’t necessarily mean higher rates.

Note that there may be qualifying conditions or minimum deposit requirements before you’ll be able to open a business bond, so make sure to check the terms and conditions of any account you’re considering. It’s also essential that you make a note of the bond maturity date, as if you forget to give instructions to your bank or building society ahead of time, the funds will generally be transferred to a lower-paying variable rate account.

How long should I fix for?

This will largely depend on your business needs and cashflow requirements. Longer-term fixes offer the chance to accrue more interest and remove the temptation to spend the cash on anything else, ensuring you’re left with a suitable pot of money to fund your future business plans.

Yet there's also the potential to lock your money away for only a very short period of time. This could still give you a better return than an easy access account, but you can be safe in the knowledge that you don't have to lose access for long. Some providers will offer fixed rate bonds with terms as short as three or six months, which could be the ideal compromise for some businesses.

A good rule of thumb is probably to split your savings between easy access and fixed rate accounts of varying terms, offering the potential to get a substantial return from your surplus cash without locking it all away for too long.

What will my savings pot total once the business bond matures?

This will depend on the amount you have saved and the interest rate offered. Here’s an example:

You save £10,000 in a five-year business fixed rate bond paying 4% AER. At the end of the five-year period, you’ll have £12,166.53 in your pot (your initial £10,000 investment plus £2,166.53 in interest). Use our lump sum savings calculator to see more examples.

Are business bonds protected by the FSCS?

Money held in a business bond may fall under the protection of the Financial Services Compensation Scheme (FSCS). Whether a business is eligible for protection under the scheme is not straightforward (even the FSCS’s site can’t give a definitive answer!), but generally the deposits of non-financial businesses will be covered.

This means the FSCS will protect the first £85,000 an eligible business has saved under a single UK banking licence. You can read more about this protection in our depositor protection scheme guide.

What banks offer the best business bond rates?

Typically, smaller niche providers offer the best business bond rates, as they’re competing more heavily for your savings. Names such as Shawbrook Bank, Hampshire Trust Bank and Union Bank of India feature heavily in our charts; you can read more about these kinds of brands and why you should consider them in our comprehensive guide to challenger banks.

If you’re looking for a more recognisable name, Virgin Money is arguably the most well-known brand that offers competitive rates in the business bond sector, with other high street providers in the space (which include Santander and Lloyds Bank) typically offering poorer returns.

That said, things can change quickly, and it’s important to compare the options thoroughly so you can be confident you’re getting the best rate. Use our comparison chart above to see the kind of deals on offer.

Alternative business savings products

Not sure if a business savings bond is right for you? Consider these instead:

Variable rate accounts

Variable rate accounts – either business easy access accounts or business notice accounts – can offer a more flexible home for your business savings. They typically allow you to make additional deposits and access your money more readily, with withdrawals permitted either with or without a notice period. The trade-off is that rates tend to be lower for easy access deals, though there are some notice account rates that are comparable to fixed business bonds. Just bear in mind that, as they’re variable accounts, the rate could change at any time.

Business bank accounts

Business bank accounts may not traditionally be thought of as a home for your savings, but there are some available that offer in-credit interest. This means you could earn additional interest on your everyday business funds, putting it to even better use. Compare the options using our chart showcasing the best business bank accounts.

Business credit cards

Business credit cards can offer a convenient way to manage your business expenses, and many offer cashback on purchases. This means that, while they don’t offer a direct home for your savings, they could provide a definite boost to your cashflow – provided they’re managed responsibly.