Best savings bonds


If you’ve got cash available which you can afford to leave untouched for a while, a savings bond could be worth a look.

Unlike easy access accounts, a savings bond comes with a set term, and pays a fixed rate of interest during that term – so, you might invest your cash for three years in a bond which pays 2.50%, for example.

You can choose how long you want to tie up your cash for as bonds tend to come with one, two, three, four or five-year terms. And, as you may expect, as a general rule, the longer you commit your money for, the higher rate of interest you’ll earn.

Savings bonds usually require you to invest a one-off lump sum, and most accounts won’t allow you to top them up once they are up and running. As a result, you’ll usually need at least £100 to open this kind of account, although many require a £1,000 initial investment or, in a few cases, as much as £5,000 or £10,000.

Who do savings bonds suit?

A savings bond might be right for you if you’ve got a defined savings goal in mind. Perhaps you’re saving towards a wedding in a couple of years’ time, or you want to get on the property ladder in the next few years?

As you know exactly how much interest you’re going to be earning with a savings bond, you know what you’ll end up with when the account matures. Some savings bonds allow you to have the interest you earn paid monthly rather than annually – which can be useful if you’re looking to top up your existing income.

Thanks to the introduction of the Personal Savings Allowance in April 2016, all basic rate taxpayers can now earn £1,000 of savings interest a year without having to pay any tax on it. You’re a basic rate taxpayer in the 2016-17 tax year if your income is less than £43,000).

If you’re a higher rate taxpayer, paying tax at the 40% rate on an income between £43,001 and £150,000, you’re entitled to a lower PSA of £500 a year. 

If you’re an additional taxpayer earning £150,001 or more, you won’t get an allowance at all.

...the longer you commit your money for, the higher rate of interest you’ll earn

Fixed-rate risk

Knowing your returns will remain the same over time may be useful for budgeting purposes, but it can also be something of a double-edged sword.

After all, the last thing you want is for interest rates to rise, while you have locked yourself into an account that is no longer competitive.

Let’s say you’ve gone for a four-year bond which pays 2.75%. It looks like a good deal now, but what if interest rates start climbing and, after a couple of years you could be earning 3.50% in an easy access account? The longer you tie up your savings, the greater this risk becomes.

On the flipside though, if rates remain low for some time to come, you could end up earning much better returns than if you had plumped for an easy access savings account.

Withdrawal penalties

The other potential downside of savings bonds is that you cannot usually get your hands on your cash until the end of the account term. A few savings bonds allow a limited number of penalty-free withdrawals, but most charge a penalty – in the form of loss of interest – if you want to take out any money before the bond matures. That means you could be in for a very long wait if you’ve put your money into a five-year bond.

Where can I find savings bonds?

Savings bonds are offered by wide range of providers including high street banks, building societies and even supermarkets. If you decide a fixed rate savings bond, is right for you, remember rates vary so be sure to shop around for the best deal.

  1. Great for
    Online application and access
    A choice between monthly or annual interest
    FSCS protection up to £85,000 per depositor
    But be aware that
    Withdrawals are not permitted within the fixed term
  2. Great for
    Guaranteed rate of interest for the term of the investment with interest payable annually or upon maturity
    Sterling denominated
    Online application
    But be aware that
    Agribank falls under the Maltese Compensation Scheme with the first 100,000 euro of savers' money is protected - equivalent to £85,053 (correct as of 16.02.2017) rather than the usual £85,000 protection currently offered by UK-owned banks
    Withdrawals are not permitted during the term. Investment must be funded from a UK bank account. Minimum investment £5,000
  3. Great for
    Interest options: monthly, quarterly, annually or upon maturity, with automatic roll-over option
    Quick and easy online application process
    FSCS compensation scheme
    But be aware that
    Withdrawals are not permitted within the fixed term
    You must be aged 18 or over
  4. Great for
    Customers who are happy to leave their money untouched for a fixed term
    Opening with a single deposit from just £500
    Choose either monthly or annual interest payments
    But be aware that
    No additional deposits permitted
    You won’t be able to close your bond unless it’s due to exceptional circumstances and a breakage fee may apply. If the interest you’ve earned doesn’t cover this, you may get back less than you put in.
    Post Office Money ® Online Bond is provided by Bank of Ireland

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