Best Fixed Rate Bonds

Fixed rate bonds explained

What is a fixed rate bond?

A fixed rate bond is simply a type of savings account. Unlike variable savings accounts, fixed rate bonds pay the same rate of interest for a specified number of months or years.

During this period, you can’t typically withdraw your savings from the account or, in some cases, make any further deposits. Because of this, fixed rate bonds are popular with those who have a lump sum that they definitely won’t need to access for a while.

Don’t get fixed rate savings bonds confused with investment bonds. Unlike deposits in a fixed rate savings bond, any money you put into an investment bond is at risk and could go up or down in value.

How does a fixed rate bond work?

A fixed rate bond, also called fixed rate savings account or 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, most fixed rate bonds only allow a single lump sum deposit when you open the account, and there will normally be minimum deposit requirements as well.

What is the funding window for a fixed rate bond?

A funding window on a fixed bond is the length of time the provider allows you to deposit into your account. While many fixed bonds won’t allow you to make further contributions to your savings after the initial deposit, others may offer a short funding window after opening, such as 14 days, when you can add to your savings.

How is the interest on fixed rate bonds paid?

Interest on a fixed rate savings account can be paid in a variety of ways. You may be able to have interest paid monthly, quarterly, yearly, on anniversary or on maturity, for example, depending on your preferences and the provider you choose.

Accounts that pay interest monthly or quarterly could appeal to savers who want their interest to supplement their income, especially as some providers can pay interest into your current account instead of your savings account.

When you compare the best fixed bond rates on our charts, you can see the ways that individual accounts can pay interest.

Can I open a fixed rate bond as a joint account?

It may be possible to open a joint fixed rate bond with another individual, such as your partner or a family member.

Both individuals will need to fill in the application form and both will be able to add to the account and withdraw funds.

Bear in mind that not all providers offer fixed rate bonds as a joint account.

What terms of fixed rate bonds are available?

Terms can range from as little as one month to over five 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.

Some popular term lengths include:

• One-year
• Two-year
• Three-year
• Four-year
• Five-year

You can also choose to take out a fixed bond with a term of up to one year, as well as 18-month fixed bonds.

What’s the longest fixed rate term available in the UK?

At the time of writing, the longest fixed rate savings term available is seven years. Seven-year bonds are only offered by a handful of providers.

The longest fixed term that many providers offer is five years.

For how long should you fix?

This is a very personal decision and will be based largely on your savings goals 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.

What can you use a fixed bond to save for?

You can use a fixed bond to help you save towards a range of short-term and long-term savings goals, such as a wedding, a new car, home improvements, a holiday and more. It could even be one of the ways you save for your retirement, alongside a pension, for example.

Parents may also consider opening a fixed rate bond to put aside money for their children’s future, so they have a financial cushion when they go to university or move out of the family home, for example.

Because you can’t typically access your money before the end of the term, make sure you choose a fixed bond that matures before you will need the money.

How do I choose the best fixed rate bond?

You should choose a fixed rate bond based on which account is best suited to your situation. Some of the main factors you’ll need to think about include:

• the interest rate
• the length of time you are comfortable locking away your money for
• the minimum opening deposit required
• whether you can add to your savings after opening
• the ways you can open and manage your account.

You can compare the different features of fixed rate bonds and the best rates on our charts above.

How do fixed rate bonds compare to other savings accounts?

Fixed rate bonds are a popular option for savers as the interest rate is guaranteed for the specified period. By contrast, other savings accounts, including easy access and notice accounts, pay a variable rate of interest, which means the rate could change.

However, while easy access and notice accounts typically allow you to add to your savings and make withdrawals as you choose, fixed rate bonds are more restrictive. In return for the guaranteed rate, you typically have a limited period of time to make your deposits and won’t be able to access your money early.

Withdrawing money from a fixed rate bond

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.

Who can open a fixed rate bond?

You can typically open a fixed rate bond when you’re at least 16 years old, although some providers may only accept applications from those aged 18 or over.

Providers also normally require you to be a UK resident to open a standard fixed rate bond.

Aside from these two basic requirements, you will need a lump sum to deposit into your account that you won’t need to access for the specified period.

Providers set a minimum amount that you need to deposit to open a fixed rate bond, which could range from £1,000 to £10,000 for example. Always check the deposit requirements of a provider to make sure you have sufficient money to open the account.

Bear in mind that some fixed rate bonds may only be available to existing customers of the provider.

What should I consider before opening a fixed bond?

Before opening a fixed rate savings account, it’s important to be sure it’s the right decision as you typically won’t be able to withdraw your money before the end of the term.

As a result, think about whether you’re comfortable not having access to your savings for this period of time. Locking your savings into a fixed term is a commitment, especially if it’s several years or longer, so you need to be certain you won’t need the money during this period.

Make sure you have sufficient savings in an easy access account that can act as an emergency fund if you need to cover an unexpected expense or your income drops, for example.

It’s also worth checking that your savings will be protected under the Financial Services Compensation Scheme (FSCS) should the provider go bust. 

What happens if the Bank of England raises or lowers the base rate?

Any changes the Bank of England makes to the base rate won’t affect the interest rate on any existing fixed rate savings accounts. This is because the rate is guaranteed for the specified term.

However, the base rate could affect the interest rate that providers set on any new fixed bonds. For example, if the base rate drops, providers may start offering lower interest rates on their savings accounts.

Are fixed rate bonds worth it during inflation?

If the interest rate on a fixed rate bond is above the rate of inflation it means your money is growing in real terms. Inflation erodes the purchasing power of your money (which means the same amount of money buys less than it used to) but, if your money is in an account paying an inflation-beating rate, you’ll still get a return on your savings.

By contrast, if the interest rate on your fixed savings account is lower than the rate of inflation, your money won’t buy as much as it did before. However, the higher the interest rate on the account, the less that inflation will erode the purchasing power of your savings.

What are the alternatives to a fixed rate bond?

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.