Savings - Guide page - Guide to the best savings bonds

Guide to the best savings bonds

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What is a savings bond?

A savings bond – sometimes called a fixed rate savings account – pays a fixed rate of interest for a set term. So, you might earn 2.5% a year for three years. The terms of the bonds vary, but you can usually choose an account that pays a fixed rate for one, three or five years. 

Generally speaking, the longer the term, the higher the rate of interest.

A savings bond can be a good option if you are saving for something specific, or if you rely on your savings for income, because you can work out how much interest you will earn over the term knowing that the amount is guaranteed – you don’t have to worry about the ups and downs of interest rates.

Fixed rate risk 

But there are downsides to savings bonds.  The biggest risk of a fixed rate account is that interest rates move against you. 

Let’s say you select a five year bond at 3%. It looks great now, but what if interest rates start to climb and after three years you could be earning 4% in an easy access account? Your savings bond would look much less appealing.

 

Clearly, the longer the period for which you lock up your money, the greater this risk becomes. But the flipside is that, if rates elsewhere fall, you’ll be enjoying a relatively high return.

Withdrawal penalties

The other potential pitfall of savings bonds is that you cannot normally access your money until the end of the term. Some savings bonds allow a limited number of penalty-free withdrawals, but most charge a penalty – in the form of a loss of interest – if you want to get your hands on your cash before the bond matures. And that can be a long wait if you open a five-year bond.  

Minimum deposit

Then there’s the minimum deposit. You can usually open an easy access savings account with just £1. But some savings bonds insist on a minimum deposit of £1,000. You are also unable to top up your account. In other words, you cannot drip feed money into a savings bond, it has to be a lump sum. 

 

...it’s not surprising that more are turning to savings bonds.

Savers are struggling to beat tax and inflation in today’s economic climate, so it’s not surprising that more are turning to savings bonds. Just remember that a fixed-rate bond is really only suitable if you are prepared to lock your money away for the full term. 

Savings bonds are available from a wide range of provides including banks, building societies and supermarkets. If you are looking for a savings bond, you can compare the rates of all the leading accounts quickly and easily using MoneySupermarket’s free independent comparison site.

Fixed rate bonds - featured accounts - Ordered by term

Apply for the accounts below today or see all fixed rate bond accounts

    • Provider/Product name Fixed Online Saver

      Halifax

      Fixed Online Saver

    • Interest rate (AER) 2.00% Fixed
    • Min/Max opening amount £500 to £5,000,000
    • Notice / Term Term: 5 year bond
    • Account type Fixed Rate Bond
    • Access Internet Post Telephone In Branch
    • Go to site

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    Choose annual interest of 2.00% gross/AER fixed or monthly interest of 1.98% gross/2.00% AER fixed
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    Early closure is allowed subject to the loss of 365 days gross interest
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