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.
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.
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
- 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
Savers Prize Draw
One top prize of £500,000 to be won in June
- Great for
- Choose annual interest of 2.00% gross/AER fixed or monthly interest of 1.98% gross/2.00% AER fixed
- Halifax Savers Prize Draw: Register by 31st May and hold £5,000+ in qualifying Halifax and/or Bank of Scotland savings accounts for the whole of May. Customers living in England, Wales & Scotland aged 18+ only (Not NI)
- But be aware that
- No withdrawals or additional deposits are allowed during the term of the product
- Early closure is allowed subject to the loss of 365 days gross interest