Best Business Bonds

Business savings bonds explained

What is a business savings bond?

Business savings bonds are a form of business savings account that pay a fixed rate of interest on your money. The interest rate won’t change during the specified term, but in return you won’t be able to access your savings during this period.

Fixed rate business bonds can have terms ranging from a few months to five years.

Because of the withdrawal restrictions of a business bond, they typically pay higher rates than their easy access counterparts.

How does a business savings bond work?

To open a business savings bond, businesses will need to deposit a minimum sum into the account.

Once open, businesses may have a limited time during which they can continue to add to their savings. However, some accounts may not accept any further additions after the initial deposit.

The provider will pay the advertised interest rate for the specified term, whether that’s six months or five years. However, your business won’t be able to access these funds until the end of the term.

Even if withdrawals are permitted, you are likely to be penalised in terms of loss of interest or even closure of the account.

Just before the end of the fixed term, the provider will contact you. When your bond matures (or ends) you can choose whether to withdraw your money into your business bank account, redeposit it into a new savings bond or move it into an easy access savings account, for example.

If you don’t give the provider any instructions, it may automatically move your savings into a low-paying variable rate account at the end of the term.

What's the average amount required to open a business savings bond?

The amount required to open a business savings bond can vary. A minimum opening deposit of £10,000 is fairly typical, but some accounts may accept smaller deposits of £1,000 while others require a higher deposit of at least £20,000.

How is the interest on business savings bonds paid?

Interest on business savings bonds can be paid in a variety of ways, including monthly, on anniversary or on maturity.

Some providers allow you to choose how interest is paid, but others will only give you one option. You can see the ways that different business bonds pay interest on our charts above.

What is a business savings bond used for?

A business savings bond can be used for a variety of purposes but, crucially, it should only be used for surplus money that a business won’t need to access for the specified term.

For example, a fixed rate bond could be suitable for savings that a business wants to use towards future expansion or major purchases, for example. Putting this money in a bond allows it to earn guaranteed interest and keeps it separate from your day-to-day business funds until you’re ready to use it.

What’s the longest business savings bond term available in the UK?

The longest fixed savings bond for businesses is typically five years, although it may be possible to find terms as long as seven years.

Not all providers offer terms as long as this. See our chart to compare five-year fixed business bonds.

How long should I fix for?

This will largely depend on your business needs and cashflow requirements. Longer-term fixes allow you to earn a guaranteed interest rate for longer and, because you can’t withdraw your money, they also remove the temptation to spend the cash on anything else, ensuring you’re left with a pot of money to fund your future business plans.

Locking your business savings away for a number of years will also protect it from any drops in savings rates.

However, if you’re not comfortable locking away access to your money for a long period, there are short-term bonds available with terms of one-year (or less), for example. These could still give you a better return than an easy access account, but you have the reassurance that you will be able to access your savings relatively quickly, if necessary.

If they can afford to do so, some businesses may find it useful to split their savings between fixed rate bonds with different terms. This could be a good compromise as businesses will have access to some of their money sooner while the rest continues to earn interest.

Whatever term length you opt for, it’s a good idea for businesses to put aside some of their savings into an easy access account so they can quickly withdraw money if they need to cover an emergency expense or a short-term drop in cashflow, for example.

How do interest rates on business savings bonds compare to other options?

Business fixed rate bonds often pay higher rates than easy access accounts and, as an extra benefit, this interest rate is guaranteed for the length of the term and won’t change.

Business notice accounts can pay comparable rates to fixed bonds but, as the interest rate is variable, this could change and mean you earn less interest than initially expected.

Instead of putting money into a savings account, your business could consider investing it. However, while this could offer greater returns in the long-term than if it was in a savings account, investments can drop in value, which means you could get less money back than you put in.

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

This will depend on the amount you deposit in the account and the interest rate offered.

For example, if you save £10,000 in a five-year business fixed rate bond paying 4.00% 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).

Alternatively, if you deposit £10,000 into a one-year business bond paying the same rate of 4.00% AER, you could earn £400 in interest.

Can my business withdraw its money early from a business savings bond?

Once you’ve deposited money into a business savings bond, you won’t normally be able to withdraw it before the end of the specified term.

This means it’s crucial for businesses to think carefully about how much they deposit in these accounts, making sure they keep sufficient funds available to cover their day-to-day expenses, as well as any unexpected costs.

Are business savings bonds safe?

Money held in most business bonds is likely to be protected under the Financial Services Compensation Scheme (FSCS), unless your business operates in the financial services industry.

For the majority of businesses, the FSCS will protect the first £85,000 saved with a provider (or multiple providers if they share a banking licence).

Limited companies and limited liability partnerships have their own £85,000 limit, separate from the personal limit of any directors.

By contrast, those operating as sole traders or partnerships will only be protected up to £85,000 across their business and personal savings, as their business isn’t classed as a separate legal entity.

What banks offer the best business bond rates?

Businesses are likely to find the best rates on business savings bonds come from specialist savings providers, not necessarily the more familiar high street banks. Some providers, such as Allica Bank, Redwood Bank and Cambridge & Counties Bank, also specialise in catering to businesses and often feature near the top of our charts.

However, providers can change rates and their product range relatively quickly, so it’s worth comparing rates regularly to ensure you’re getting the best return on your business savings.

Use our comparison chart above to see the best deals currently available.

How do I choose the best business savings bond?

When choosing the best business fixed rate bonds, the interest rate will be a crucial factor. However, there are other elements to consider to make sure you choose the right account for your business, including:

• the term length
• the minimum deposit requirements
• how your business can open and manage the account
• how interest is paid
• whether your business can add to the account after the initial deposit.

Furthermore, make sure you check the eligibility requirements of an account, as some providers may only cater for certain types of businesses.

Who can open a business savings bond?

All kinds of businesses can open a business savings bond, including limited companies, sole traders, partnerships, clubs and charities.

However, individual providers may not cater for all businesses, with some accounts not available to sole traders, for example, while other accounts are only available to businesses operating in certain industries.

Furthermore, to open certain accounts, businesses may need to have a bank account with the provider.

As a rule, to open any business savings account, applicants typically need to be UK residents with a UK-registered business.

Can I open a business savings bond as a joint account?

While business savings accounts can only be in one business’s name, it’s possible for multiple directors (or other key individuals) to manage one account.

Are business savings bonds better for short-term or long-term cash management?

Depending on the business savings bond you choose, these accounts can help your business plan and manage its finances in the short- and long-term.

For example, business bonds with a fixed term of up to one-year can be useful for achieving a short-term goal, as you will be able to access and use your savings relatively quickly.

By contrast, business savings bonds with longer fixed terms of two-, three- or even five-years lock away your savings for longer. This means you won’t be able to use this money in the short-term, making these accounts more suitable for longer-term planning and goals that your business hopes to achieve further in the future.

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 on our chart of the best business bank accounts.