Today's Best Fixed Rate Bonds
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Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme (FSCS) up to a maximum level of protection of £85,000 per person per institution. All new savings or bank accounts provided to UK customers are now covered by the FSCS.
DisclaimerAll rates subject to change without notice. Please check all rates and terms before investing or borrowing.
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A fixed rate bond asks you to lock your money away for a pre-agreed length of time, in return for a fixed rate of interest. The bank or building society cannot change the rate during this term, and you normally won’t be able to access your funds until the term ends.
Because the money is locked away, you won’t be able to add to the pot during the term either. Most fixed rate bonds only allow a single lump sum deposit when you open the account – some will allow further additions for a short period, but you won’t be able to make regular additions – and there will normally be minimum deposit requirements as well.
Most fixed rate bonds pay interest every year, which means the interest you earn is compounded to increase your total balance. However, some accounts will pay interest on maturity, and others may pay interest monthly or quarterly, which can allow the interest to be used as an income.
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Terms can range from as little as three months to over five years, with the longest typically around seven years. Interest rates can vary accordingly, but there’s currently a great deal of variation. Traditionally, the longer the term the higher the interest rate, but today that’s not always the case. Indeed, you may find that the top fixed rate savings account has a one-year term rather than a five-year, which makes comparing the options more important than ever.
This is a very personal decision, and will be based largely on your savings goals – do you have a holiday coming up, for example, or are you saving for a wedding or even retirement – and the practicality of keeping your money tied up. You should consider how long you can reasonably go without access to your funds, making sure you’ve got a suitable emergency fund so you won’t need to access your fixed rate savings.
Once the term of the bond has come to an end, otherwise known as maturing, you’re free to withdraw your money or reinvest as you see fit. Your provider should notify you in advance of the maturity date to offer instructions. You can choose a new account with the same provider or can go elsewhere, again making sure to compare rates before you make your decision.
If you’re looking for an account that will allow you to regularly add to your savings or dip into your funds without penalty, an easy access or notice account may be preferred, or you may wish to consider high interest current accounts or regular savings accounts instead (just be aware that these often have a cap on the maximum balance allowed).
For those with larger sums, investing in the stock market could be a great choice, provided you’re happy with an element of risk. This is because there’s no guarantee – returns can be volatile and are dependent on the performance of the market, so while there’s the potential to secure higher returns than with cash savings, there’s also the chance that you could end up with less than you put in.
You can complement your fixed rate bond with the different types of savings accounts and investments:
Easy access savings accounts
Notice savings accounts
Invest platforms
Stocks and shares ISAs
Given that fixed rate bonds are a type of cash savings account, there is no risk to your capital, which means you’ll always get back at least the money you invested. Fixed rate bonds held with a UK-authorised bank or building society are also protected by the Financial Services Compensation Scheme (FSCS), which covers up to £85,000 per person per banking licence.
You must pay tax on any interest you earn from savings and investments if it exceeds the Personal Savings Allowance (PSA), which is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. This means that the interest earned from your fixed rate bonds may be tax-free, but it depends how much you’re earning. If you’re worried about breaching your PSA, you may want to consider fixed rate ISAs instead.
Most of the time you cannot access your money in a fixed rate bond until maturity, and you almost certainly won’t be able to do so without some form of penalty. This may be a flat loss of interest (such as 180 days’ loss) or may be tapered depending on when the withdrawal is made (for example, 365 days’ loss if the withdrawal is in the first year, 320 days’ loss if in the second year, etc.). This means you should be confident that you won’t need to access your funds until the end of the term.