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A fixed-rate bond, sometimes known as a savings bond or a fixed rate savings account, is a type of savings account that holds your money for a set period of time, known as the term. You're paid a fixed interest rate on the amount you have in the bond for the duration of the term.
Fixed rate bonds usually pay a higher interest rate compared with savings accounts that give you easier access to your money. So you won't be able to take cash out or add more money during the fixed term.
This is why a fixed rate bond is a good option for those who already have a lump sum of money, but will only need the money in the next one to three years, though you can get five year fixed rate bonds as well.
Read our in-depth guide on fixed rate bonds.
Fixed rate bonds work by locking your money away for a set term, during which you earn a fixed rate of interest .
The terms on fixed rate bonds can vary from one year and go up to seven years and typically, the longer the term of the bond, the higher the rate will be.
However, unlike ordinary savings accounts, most bonds don't let you add money little by little, you need to deposit all the money you want to invest in a lump sum.
The top interest rate per term from August 2023 to February 2024 - data from Deqfato and Money.co.uk. These rates exclude deals for existing customers, any area restrictions and children's savings accounts.
Our editors picked this deal by weighing several factors such as the interest rate, term, withdrawal conditions, minimum opening balance and others for this product.
Our editors picked this deal by weighing several factors such as the interest rate, term, withdrawal conditions, minimum opening balance and others for this product.
Our editors picked this deal by weighing several factors such as the interest rate, term, withdrawal conditions, minimum opening balance and others for this product.
When the term ends, the bond is said to have matured. Typically, your bank or building society will contact you long before the bond reaches maturity. They will ask what you want to do with your money when the term ends and give you some options to consider.
In most cases, your provider will give you a selection of options to choose from. These could include:
Reinvesting the money in a new bond
Setting up a new bond with your existing funds and adding an additional amount
Reinvesting a proportion of the bond and withdrawing the rest
Closing your account and withdrawing all your savings
Type of account | Interest earned at the end of the term before tax (£1,000 deposit) |
---|---|
1 Year Fixed Rate Bond (5.25%) | £52.50 |
2 Year Fixed Rate Bond (4.75%) | £96.73 |
5 Year Fixed Rate Bond (4.16%) | £223.88 |
Source: Derived from data from Defaqto, updated March 19, 2024
If your fixed rate bond has matured and you've chosen to cash in your money, follow these three steps.
Complete the form provided by your bank
Wait while your bank transfers the money into your account
Decide what you want to do with your money
If you decide on reinvesting your money, it's a good idea to compare the latest rates on offer for a new fixed-rate bond, or consider other types of savings accounts or investing products.
You could also speak to a financial adviser for further guidance on what to do.
With a fixed rate bond you’re locking away your money at a fixed rate for a set period. So there is a chance that interest rates may rise during that term, you may not end up earning the best rate possible over the full term of the deal.
At the same time, your original investment may not hold its value in real terms if the interest you’re getting is less than the rate of inflation over the investment period.
The resulting impact of those circumstances may affect your eventual return on investment, but it isn’t nearly as significant as losing the entirety of your investment.
The latter scenario is also highly unlikely as fixed rate bonds are protected under the Financial Services Compensation Scheme (FSCS) up to a maximum of £85,000.
If you plan on investing more than that, it's best to split any amount over £85,000 with another bank or provider. Just be sure that the new bank or provider doesn't operate under the same banking licence as your other accounts.
Our best interest rate for a fixed rate bond is currently 4.9%.
In terms of how much money you need to open a fixed rate bond, you can open most fixed rate bonds with as little as £1 and as much as £5,000.
Yes, you can open a fixed rate bond online. Just like any savings account, you can open a fixed-rate bond online, or by visiting a bank or building society branch.
Yes, you can have more than one fixed rate bond but make sure you keep some money accessible in case of an emergency. Read this guide for help choosing the right savings account.
Yes, you can have a fixed rate bond if you have bad credit as your finances are not checked when you open a savings account. If you need help choosing the right savings account, read this guide.
You may be able to withdraw your money before the term ends, but you'll likely have the pay a penalty. Typically this amount any interest you've earned on your money. It's worth checking the terms and conditions of your fixed rate bond before you sign up.
You only have to pay tax on any interest you have earned from a fixed rate bond if it exceeds your Personal Savings Allowance.
However, those earning £17,570 or less also qualify for the "starting rate", which could give you up to an extra £5,000 savings allowance depending on your income.
Under current rules, those earning £12,750 would be eligible for the full £5,000, but this entitlement decreases by £1 for each additional £1 you earn in income.
Below you can find a list of our savings pages:
Investment pages (capital at risk):
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