Review of the week: Santander Two-year Fixed Rate Bond

Fixed rate bonds are a popular choice with savers at the moment. While they are less flexible than easy access accounts, they are paying higher rates of interest. And with the Bank of England base rate at a record low of 0.5%, maximising returns is more important than ever.

As a result savers have been pouring money into this type of savings account.

Santander, the new name in the British banking arena, has launched a new range of fixed rate bonds including a two-year account paying up to 4.10%. Read our article 'Goodbye Abbey and Bradford & Bingley; Hello Santander' and watch our video 'Santander drives ahead with rebrand' for more information on the change.

So what’s the deal?

This is a savings account aimed at those with a lump sum to invest. Only one deposit it allowed at the time the account is opened – the minimum you can pay in to the account is £1 and the maximum is £2million. However, the amount you deposit will affect the rate of interest you earn on you money.

In order to earn the highest rate of 4.10% you must pay in £25,000 or more. The rate is 3.70% on balances between £10,000 and £24,999, and 3.50% if you invest £9,999 or less.

Whatever rate you qualify for will be fixed until 1 February 2012 and the deal is available to both existing and new Santander customers. ‘Existing customers’ means customers with old Abbey or B&B savings accounts, or Alliance & Leicester savings customers – Alliance & Leicester is also owned by Santander and it will be rebranded later in the year.

Are there any catches?

In addition to the fact that only one deposit is allowed (making the account unsuitable for those looking to save on an ad hoc or regular basis), withdrawals also aren’t permitted during the fixed rate term. If you need access to your money early you will have to close the account and withdraw the entire amount – you’ll pay a penalty for this access in the form of 120 days’ loss of interest.


If you have £25,000 or more that you are looking to invest this is one of the leading two-year fixed rate bonds available as you will qualify for the highest rate of 4.10%. It looks less competitive on balances of less than this.

Even the 4.10% rate is not quite the best rate on the market, however. ICICI Bank has a two-year bond paying 4.25% and this is available on balances of £1,000 or more. A difference of 0.15 percentage points equates to £37.50 gross interest a year on a balance of £25,000, which isn’t a huge amount so the Santander bond is still worth considering for those with a large amount of savings. Some savers may feel more comfortable investing with Santander as it is one of the world’s largest banks.

For smaller balances though, the ICICI deal has the edge and if you are nervous about investing with ICICI, remember it is registered with the Financial Services Authority and fully signed up to the Financial Services Compensation Scheme. This means the first £50,000 is totally guaranteed (£100,000 if the account is held jointly).

Top tip

It is easy to be attracted to a savings account by the headline rate but you need to be careful with fixed rate bonds because, generally, the higher the rate, the longer the fixed term. Given that most don’t allow withdrawals during the fixed term, it is important not to base your decision on rate alone.

As important is the length of time you can afford to lock your money away for. If there is any chance you may need access to your money, err on the side of caution and go for a shorter term bond (some are fixed for five years and in a few cases even longer).

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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