Best 1 Year Fixed Rate Bonds

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A guide to one-year fixed rate bonds

How does a one-year fixed rate bond work?

A one-year fixed rate bond works by asking you to lock a lump sum of money away for 12 months in return for a set interest rate. It can offer better returns than, say, easy access accounts, without tying up your money for an extended period, offering the ideal trade-off between access and a decent return.

There will normally be minimum investment requirements – the very best one-year fixed rate bonds typically expect a larger investment of at least £1,000 or even £10,000. Interest is often paid on maturity or yearly, though some will pay interest monthly.

In most cases, fixed rate one-year bonds will not allow withdrawals – you may find one or two that allow access with an interest penalty, though this will likely eat up any interest earned. You normally won’t be able to make any further deposits into the account either.

You can open as many one-year fixed rate bonds as you like, provided you adhere to the terms and conditions of each. Just make sure that you split your money between different banking providers to ensure you’re keeping within FSCS limits, and be mindful of your personal savings allowance.

Can interest rates change during the one-year term?

No. Once you’ve set up the account at the agreed rate, it won’t change over the term. This can provide a great deal of security and means you’re guaranteed to get the interest you expect. However, it can also be a downside for some savers, as if interest rates were to rise during the year, you wouldn’t be able to take advantage.

Can you extend or shorten the one-year term?

No. As with the rate itself, once you’ve agreed on the term, it cannot be changed. The only options are to access your funds early if allowed (subject to an interest penalty), or reinvest the funds into a new account once the bond has matured.

Is a one-year fixed rate bond suitable for me?

A year is a relatively short time to lock your money away, which means one-year fixed rate bonds can be ideal for anyone considering a short-term savings option. However, due to the restrictions on withdrawals, you must be certain that you won’t need access to these funds during the term.

What happens at the end of a one-year fixed bond?

At the end of the term your funds will be released. Your provider should contact you ahead of this to outline the options available, which will usually be reinvesting into one of their products or cashing in. Bear in mind that most providers will automatically transfer your funds into a nominated or lower-paying variable rate account when the bond matures, so make sure to instruct them ahead of time so you’re not missing out on valuable interest.

What are the alternatives to a one-year fixed rate bond?

If you’re not comfortable with locking your money away you may want to consider one of the best notice accounts instead, which will allow access provided you give notice to your provider. Then there are easy access accounts which permit access at will, or if you don’t mind locking your money away but want a slightly shorter term, a fixed bond of up to one year could be a great compromise. Alternatively, if you feel confident about committing to a longer period, you might consider a two-year fixed rate bond instead.