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The Best Fixed Rate Bonds

Updated: 9th July 2020

If you want to boost the rate on your savings, fixed rate bonds could be a good choice. In exchange for tying up your money, you can get rates higher than the typical current account or easy access savings account.


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Here are MyWalletHero’s picks for the fixed rate bonds:

Great for: Competitive fixed rate interest
5 stars question mark
Saga logo
  • Interest Rate (AER):

    1.00%
  • Account Type:

    1 Year Fixed Rate
  • Protection Scheme:

    FSCS
  • Account Minimum:

    £1

WHAT YOU NEED TO KNOW

  • Minimum deposit £1
  • Maximum account balance £100,000
  • Deposit must be made within 14 days of opening, but can be done via unlimited payments
  • It's possible to close the account and access funds early (a fee applies)

what we like

  • Competitive interest rate
  • You can close account early (a fee applies)
  • Allows multiple deposits within the first 14 days

WHAT YOU NEED TO KNOW

  • Minimum deposit £1
  • Maximum account balance £100,000
  • Deposit must be made within 14 days of opening, but can be done via unlimited payments
  • It's possible to close the account and access funds early (a fee applies)

DISCLAIMER

Great for: Competitive fixed rate interest
5 stars question mark
Paragon logo
  • Interest Rate (AER):

    1.20%
  • Account Type:

    3 Year Fixed Rate
  • Protection Scheme:

    FSCS
  • Account Minimum:

    £1,000

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £500,000
  • Your total sum must be deposited within 28 days of application via one payment
  • Can be opened as a single or joint account
  • Interest can be paid monthly or annually

what we like

  • Can be opened as a single or joint account
  • Offers monthly or annual interest payments
  • Competitive interest rate

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £500,000
  • Your total sum must be deposited within 28 days of application via one payment
  • Can be opened as a single or joint account
  • Interest can be paid monthly or annually

DISCLAIMER

Great for: Competitive fixed rate interest
5 stars question mark
Paragon logo
  • Interest Rate (AER):

    1.05%
  • Account Type:

    2 Year Fixed Rate
  • Protection Scheme:

    FSCS
  • Account Minimum:

    £1,000

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £500,000
  • Your total sum must be deposited within 28 days of application - via one payment
  • Can be opened as a single or joint account
  • Interest can be paid monthly or annually

what we like

  • Can be opened as a single or joint account
  • Offers monthly or annual interest payments
  • Competitive interest rate

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £500,000
  • Your total sum must be deposited within 28 days of application - via one payment
  • Can be opened as a single or joint account
  • Interest can be paid monthly or annually

DISCLAIMER

Great for: Highly competitive fixed rate interest
4.5 stars question mark
RCI Bank logo
  • Interest Rate (AER):

    1.40%
  • Account Type:

    5 Year Fixed Rate
  • Protection Scheme:

    FSCS
  • Account Minimum:

    £1,000

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £1,000,000
  • Deposit must be made within 14 days of opening - but can be done via unlimited payments
  • Annual or monthly interest options available

what we like

  • Highly competitive interest rate
  • Unlimited deposit payments within the first 14 days of opening (up to £1 million)
  • Option for annual or monthly interest payments

WHAT YOU NEED TO KNOW

  • Minimum deposit £1,000
  • Maximum total balance £1,000,000
  • Deposit must be made within 14 days of opening - but can be done via unlimited payments
  • Annual or monthly interest options available
  • DISCLAIMER


In this section:

What is a fixed rate bond?

A fixed rate bond is a type of savings account where you receive a guaranteed rate of interest for a set period of time. With this type of account your money is locked away for a specified term. This means you won’t be able to access your money during this time.

As a general rule, the longer your money is locked away for, the better the interest rate you can achieve. This is because banks and building societies use your money for their own funding purposes for the duration of your bond’s term. So, in return for the level of security you provide by not accessing your money for a specified period of time, banks and building societies are willing to give you a higher rate of interest on your account.

A fixed rate bond is one of the best ways to secure a decent amount of interest on a large pot of money. However, as you aren’t able to access your savings during the bond’s term, it is generally a good idea to have an easy access savings account as well for your ‘emergency fund’.

What are the benefits of a fixed rate bond?

There are several benefits to having a fixed rate bond. Let’s take a look:

Guaranteed interest rate – One perk of a fixed rate bond is that you have a guaranteed rate of interest for the duration of the bond’s term. This means you can calculate exactly what you will earn from your savings pot. And your interest rate is protected from any downturn in the market.

Higher rate of interest – A fixed rate bond usually offers a higher rate of interest when compared to the likes of an easy access account. Banks and building societies reward savers for locking their money away for a set period of time. The longer the term of the bond, the higher the rate of interest tends to be.

Minimal risk – As a fixed rate bond is a savings account and not a type of investment product, there is minimal risk to your money. The bond is protected by the Financial Services Compensation Scheme (FSCS).

What different terms are available?

Terms of varying lengths are available when it comes to a fixed rate bond. Typically, the longer you tie your money up for, the higher the rate of interest you can achieve. Just make sure you calculate how long you can realistically afford to lock your money away for.

The most common fixed rate bond terms range from one year to five years.

If you are looking for a shorter-term bond, you can find some as short as one to three weeks, or one to 18 months. But the likelihood is that you will achieve a better rate of interest with a longer-term bond.

Bonds that last more than five years are also available. But if you are interested in a term this long, it is best to talk to a financial advisor. They will be able to talk you through your investment options and help you to decide whether locking your money away for a long period of time is the best choice for you.

How does a fixed rate bond work?

In order to open a fixed rate bond you will need to make a deposit. Bonds have varying minimum and maximum deposits. Minimum deposits can range from £1 to £50,000, while maximum deposits can be as high as £2,000,000.

It is important to know if there are any limits on the amount you deposit, as once the deposit is made, you usually can’t add to it. There are some bonds that will allow further deposits for a limited time (referred to as ‘while the issue is open’), but for most, that first deposit will be your only one.

Once you have deposited your money, your interest will be calculated as a yearly percentage. Depending on your chosen bond, interest can be paid monthly or annually.

You can choose to have your interest paid into a nominated account or added to your savings. If it is added to your savings, you will benefit from compound interest but you won’t be able to access that money until the end of your fixed term.

Once your bond reaches maturity, you can choose to withdraw your money and close your account. Alternatively, you can choose to re-invest your money in another bond or move it to a variable rate savings account. Your provider should write to you when your bond is reaching maturity, but if they don’t, make sure to contact them to let them know what you want to do.

Can you lose money on fixed rate bonds?

While the big benefit of a fixed rate bond is that you can achieve a guaranteed rate of interest, there is a downside in that you can be penalised if you need to access your money before the end of the term.

For most fixed rate bonds you won’t be able to take money out of the account during the fixed term. If you do make any withdrawals, this could carry a penalty charge in the form of loss of interest. This is either a flat penalty rate (e.g. 90 days’ loss of interest), or it could be a tapered penalty rate (e.g. 365 days’ loss of interest if the withdrawal is in the first year, 300 days’ loss of interest if the withdrawal is made in the second year, and so on).*

It’s not only a penalty charge that could lose you money with a fixed rate bond. The flip side of a guaranteed rate is that you won’t benefit if interest rates increase. So you could lose out on potential returns for locking your money away in one bond for a set period of time.

*During the ongoing coronavirus pandemic, some banks and building societies are offering penalty-free access. This would be something to check before opening a bond.

Are my savings protected in a fixed rate bond?

As fixed rate bonds are savings accounts, they are protected by the Financial Services Compensation Scheme (FSCS). Being covered by the FSCS means that savings up to £85,000 are protected if the financial institution providing the bond fails.

It is important to note that this is £85,000 per financial institution. So you could have multiple bonds with different banks, and as long as none of the bonds exceed the threshold, your money will be protected.

One other thing to note is that if you choose to have your interest paid back into your bond, you should make sure that this doesn’t push your balance over £85,000.

 


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Frequently Asked Questions

What is a fixed rate bond?

A fixed rate bond is a type of savings account where you receive a guaranteed rate of interest for a set period of time. This type of bond can have differing term lengths and the interest rate is fixed for the period of the term. You won’t be able to access your money during the term, but a fixed term bond tends to offer higher interest rates compared to an easy access savings account.

Is a fixed rate bond safe?

A fixed rate bond comes with minimal risk. It is a savings product so it is covered by the FSCS. Also, it has a guaranteed rate of interest, so your money is protected from any downturns in the market.

Is a fixed rate bond protected by the FSCS?

Yes, it is. As it is a savings product, an amount of up to £85,000 deposited in a financial institution is protected. The main thing to be aware of with a fixed rate bond is that if you choose to have your interest paid directly back into the bond, it could cause your balance to exceed the £85,000 threshold.

Can you lose money on a fixed rate bond?

Yes, you can lose money on a fixed rate bond. If you try to access your money before the end of the term, you may incur a penalty charge. This is typically taken in the form of ‘loss of interest’.