What's in this guide to Fixed Rate bonds?

Most people save cash for different purposes, including short-, medium- and long-term goals. To secure a better interest rate on your interest-paying savings accounts, it makes sense to put any money you have earmarked for the longer term into a fixed rate bond. 

What are fixed-rate bonds?

A fixed-rate bond is just a savings account in which your money is locked away for a set time period, with a guaranteed interest rate applied. Your money is out of reach for a while, but if you know you won’t need to access it for a while, you might as well make it work as hard as possible.

Generally speaking, the longer you can lock your money away, the better the rate you will get. You can choose from long- and short-term fixed-rate bonds. For example, a short-term bond might have a three- or six-month term, while a longer-term fixed-rate bond might run for between one and seven years. The amount of interest you can earn will also vary depending on the size of savings.

Larger amounts command higher rates. For example, locking £50,000 or more away in five-year fixed-term bond could earn you 2.25% a year, compared to 2.15% on £10,000 of savings. Not a huge difference but it could will add up over five years.  

Pros and cons of fixed-rate bonds

Your money is safe in a fixed-rate bond as long as the provider is regulated by the Financial Conduct Authority, the watchdog for the financial services industry.

Up to £85,000 of your money per provider is protected under the Financial Services Compensation Scheme in the unlikely event your bank or building society goes bust. You can earn better rates than you would in an easy-access account.

However, most will have restrictions or penalty charges around withdrawals so you’re taking the risk that you won’t be able to get to your money if you suddenly need it.

What are the best fixed-term bond rates on the market?

Here are a few of the best deals around at the moment based on a £1,000 deposit. However, rates change quickly so do your own research using best buy tables.

  • PCF Bank 7 Year Term Deposit Issue 11 pays 2.15% AER when you pay in at least £1,000. You can’t make any further deposits or withdrawals after opening the account.
  • Gatehouse Bank offers 2.10% on its 5 Year Fixed Term Deposit. It operates under Islamic shariah finance rules and you can only open and manage this account online. 
  • FCMB Bank 3 Year Fixed Term Deposit offers 1.9% AER but you have to apply for it through Raisin.co.uk. No withdrawals are allowed. 
  • Atom Bank offers 1.65% on its 1 Year Fixed Saver which you can only manage via the challenger bank’s mobile app. You can add more money up to a week after opening but you can’t make withdrawals.
  • For short-term bonds, Atom Bank also has a 6 Month Fixed Saver paying 1.55% and a 3 Month Fixed Saver paying 1.4%, again, via mobile app only. 

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