Skip to content
Did you know your browser is out of date?
To get the best experience when using our website we recommend that you upgrade to the latest version of one of these browsers.

Fixed rate bonds

Fixed rate bonds explained

Switch savings accounts today

  • Compare dozens of options
  • Take control of your savings
  • Get Money Calm

A fixed rate bond is a type of savings account which lasts for a set period of time, during which the interest you earn does not change – even if the Bank of England base rate does

Looking for a new account?

As you typically won’t be able to access your cash during the term, returns on fixed rate accounts tend to be a lot higher than those offered by easy access accounts. And you will also have peace of mind that this higher rate won’t change.

Fixed rate bonds typically last for between one and five years – and the longer you are prepared to tie up your cash, the higher the interest rate will be.

Tying up your savings

If you have to make a withdrawal within the term you signed up for, you will be charged a penalty, usually in the form of forfeiting interest on your savings.

Fixed rate bond providers often taper the size of this penalty downwards as the term of the bond progresses – but then in the first 12 months you may not be able to access your cash at all.

So the message is clear; don’t opt for a fixed rate account if there’s any chance you’ll need your money during the account term. And always read the small print carefully.

Who are fixed rate bonds suitable for?

If you have a lump sum – perhaps a bonus from work, proceeds of a house sale or even an inheritance – which you won’t need access to for some time, a fixed rate bond is likely to be your best bet.

Fixed rate bonds typically last for between one and five years – and the longer you are prepared to tie up your cash, the higher the interest rate will be.

Most accounts don’t allow you to add to them once you’ve made your initial deposit, so pay in as much as you can afford when opening the account.

A lot of fixed rate bonds also require a high minimum deposit to open, say, £1,000. So if you only have a small sum to invest, this kind of account may not be the best option.

As you’d expect, the highest returns typically go to those who are prepared to tie up their savings for longest. If this is only 12 months, it’s worth checking how rates compare with those offered by easy access accounts. If there’s little in it, it might be worth opting for an easy access account instead and giving yourself the option to make withdrawals whenever you want.

Can I save into a fixed rate account tax-free?

Yes, if you go for a fixed rate ISA. Fixed rate ISAs operate in exactly the same way as any other fixed rate bond, except returns are free of income tax. You can save up to £20,000 in a fixed rate ISA for the current tax year (2018/19).

But if you open a fixed rate bond outside an ISA thanks to the introduction of a new Personal Savings Allowance (PSA) in April 2016, basic-rate taxpayers can earn the first £1,000 of savings interest without paying tax (£500 for high-rate taxpayers)

How long should I fix my savings for?

How long you fix your savings for all depends on what your ultimate goal is. For example, if you are saving towards a deposit to buy your first home and will need the money next year, a one-year bond will be your best option.

If, however, you expect interest rates to remain low for some time and you’re not in any rush to get your savings back, you may want to lock into a longer-term bond.

But bear in mind that if you opt for, say, a five-year bond and interest rates start climbing you could find yourself trapped in an account that is no longer competitive.

That’s why many savers opt for shorter-term one or two-year bonds, because if interest rates rise, you aren’t locked in for too long.

Finally, always check what happens to your savings once your fixed rate bond finishes. Often your money will be rolled over into another similar account but equally it could be transferred to a low-interest paying easy access account. If this is the case, make sure you move your cash as quickly as possible after your fixed rate bond matures.