Best 1 Year Fixed Rate Bonds

A guide to one-year fixed rate bonds

What is a one-year fixed rate bond?

A one-year fixed rate bond is a type of savings account. It pays a fixed rate of interest for one year but, in return, you can’t withdraw from your savings during this period.

These accounts can offer better returns than easy access accounts, without tying up your money for an extended period, offering the ideal trade-off between access and a decent return.

It’s important not to get one-year fixed bonds confused with investment bonds. While your money is at risk in an investment bond, money in a fixed rate bond (or savings account) earns a guaranteed rate of interest and is protected under the Financial Services Compensation Scheme (FSCS).

What does a one-year fixed rate bond mean?

In simple terms, when you open a one-year fixed rate bond, you will earn a fixed sum of interest on your savings for 12 months. Because the interest rate won’t change during the one-year term, this type of savings account provides you with a predictable and guaranteed return on your money.

This is in contrast to variable savings accounts that could pay a higher or lower rate than when you initially opened the account, as providers are able to change the interest rate on these accounts whenever they choose.

How does a one-year fixed rate bond work?

A one-year fixed rate bond (or one-year fixed savings account) works by asking you to lock a lump sum of money away for 12 months in return for a set interest rate. The bank, building society or other savings provider will pay the advertised interest rate for the full length of the term; there’s no risk that they will lower it.

When the one-year term ends, known as reaching maturity, you can access the initial sum deposited and the interest it earned.

In most cases, fixed rate one-year bonds will not allow withdrawals during the term – 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.

This means it’s crucial to plan ahead and think carefully about how much you deposit in one of these accounts.

There will typically be minimum opening deposit requirements – the very best one-year fixed rate bonds may expect a larger investment of at least £1,000 or even £10,000.

Can I add more money to my one-year fixed rate bond?

It depends on the provider as to whether you can add money to your fixed-rate bond after opening.

Some providers only allow you to make one deposit at the point of opening, but others may allow further deposits for a limited period, such as 10 days, 28 days or while the issue remains open.

Click “further details” next to an account on our chart to see if additional contributions are permitted after the initial deposit.

Can I choose how often my interest is paid on a one-year fixed rate bond?

Whether you can choose the way interest is paid depends on the provider. Some providers may be able to pay interest monthly, on anniversary or on maturity, for example, depending on your preferences, while other providers will only pay interest in one way.

You can see how different accounts pay interest, and whether there is a choice, by viewing our chart above.

What is the best one-year fixed rate bond?

Our chart above shows the best one-year fixed rates currently available. Providers can amend rates and products relatively quickly, but our chart is regularly updated throughout the day to show you the latest list of the best one-year fixed rate savings accounts.

It’s important to note that, even though the interest rate will be a key factor in choosing an account, there are various products on the market that will appeal to different savers. In addition to the interest rate, the best account for you may also depend on:

• the minimum deposit requirements
• the ways you can open and manage your account
• how interest is paid
• whether you can add to your savings after opening
• customer reviews of the provider.

Best one-year fixed rate bonds for over-60s

There’s no particular provider or one-year bond that is the “best” for over-60s. The best one-year bonds for pensioners and older savers will depend on their saving goals, individual situations and own preferences.

As explained above, while accounts that pay the highest interest will typically be the most appealing, it’s important to consider other features of the account too.

For example, while a one-year bond with a minimum deposit requirement of £10,000 may be suitable for someone wanting to lock away a large sum for this period, another saver wanting to put £5,000 into a one-year bond would need to find a different provider with a lower deposit requirement.

Similarly, the ways of opening and managing an account can influence which option is best for you. For example, someone who wants to open their account in person may favour an account from a provider with high street branches, whereas someone who is comfortable managing their savings online may consider digital-only providers.

How do interest rates on one-year fixed rate bonds compare to longer-term bonds?

Traditionally, interest rates on one-year fixed rate bonds were lower than longer-term fixed accounts.

However, this hasn’t been the case in recent years, with the top short-term bonds outperforming the top long-term bonds. This is because providers expected the base rate to fall over the coming years, which meant many set the interest rates on their long-term savings accounts at a lower level than their short-term fixes.

The gap between short- and long-term bonds has narrowed in recent months so, for an up-to-date comparison of one-year bonds with longer-term accounts, see our chart above and visit our three- and five-year bond charts.

Can interest rates change during the one-year term?

No. Once you’ve set up the account, the interest rate is fixed and won’t change over the one-year 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 move your money to a different account to take advantage of them.

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. This is true for all fixed rate bonds and fixed ISAs of any term length.

The only options are to access your funds early, if allowed (subject to an interest penalty), or wait until the bond has matured to reinvest the funds into a new account.

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.

Can I use a one-year fixed rate bond to save for a specific goal?

Yes, one-year bonds can be useful for saving towards a specific goal, such as home improvements, a wedding, a holiday, a new car or another expensive purchase.

If you know you won’t need the money for at least one year, putting it in a one-year bond allows it to earn guaranteed interest and means you won’t be tempted to dip into your savings for any other purpose.

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

At the end of the one-year term your funds will be released. Your provider should contact you ahead of this to outline the options available, allowing you to choose what you do with your money.

For example, you could choose to reinvest your money into a new fixed bond or move it to an easy access account with the same provider. Alternatively, you could cash in your savings and have the money transferred to your current account (or other nominated account).

What happens if I don’t provide instructions before my bond matures?

If you don’t tell the provider what you want to happen at the end of the fixed term, the provider will make the decision for you.

Some providers may automatically reinvest your savings into a new one-year fixed rate bond, while others may move it into a low-paying variable rate account. When the provider contacts you with your options, it will say what will happen to your money if you don’t do anything.

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.

The interest you earn on a savings account may be subject to tax (if you earn above your Personal Savings Allowance (PSA). So, to avoid paying tax on your savings interest, you could consider an ISA instead. There are easy access ISAs and fixed ISAs available, including ISAs with one-year fixed terms.