Compare fixed rate bonds

What is a fixed rate bond?

A fixed rate bond is a type of savings account that lets you put your money away for a set period of time in return for a fixed amount of interest on your cash. Rates can be attractive, but you won’t be able to access your money for the duration of the bond term.

How do fixed rate bonds work?

Fixed rate bonds can offer better returns than easy access savings accounts. The amount of interest you earn on your fixed rate bond will mostly depend on the bond term, but it may also depend on the size of the cash deposit you pay in.

Why should I invest in a fixed rate bond?

Reasons why you might want to consider a fixed rate bond include:

• Guaranteed interest rate: the interest rate you’re offered when you open the account stays the same for the duration of the bond, so you can work out how much interest you’ll earn overall
• Higher interest rates than an easy access account: fixed rate bonds often offer higher interest rates than easy access savings accounts in return for their lack of flexibility. With easy access accounts, you can access your money and pay in more money whenever you need to, but will often earn a lower rate, which can change at any time
• Higher interest rates for longer terms: if you can afford to leave your money untouched for longer, you will usually receive a higher interest rate
• FSCS protection: a fixed rate bond is a savings account, which means the Financial Services Compensation Scheme (FSCS) will cover up to £85,000 of your deposit if the bank or building society goes out of business. The FSCS will also cover the interest you’ve earned up until that point – provided the total amount in the account is still under £85,000. You will need to check that your fixed rate bond provider features the FSCS logo to make sure your deposit is protected

How long should I lock my money into a fixed rate bond?

Generally speaking, the longer you’re happy to tie up your money for, the better the interest rate you’ll receive. But this is not always the case; sometimes the best 1 year fixed rate bond beats the best 5 year fixed rate bond.

You will also need to work out how long you can realistically afford to leave your money untouched.

You can choose to put your money in a fixed rate bond for:

• 6 months
• 1 year
• 18 months
• 2 years
• 3 years
• 5 years

Longer-term bonds may also be available, but be sure you can afford to go without the money for that length of time.

Can I withdraw money early from a fixed-rate savings bond

In some cases, you may be able to access your funds before the end of the bond term – but you’ll usually pay a hefty penalty fee for doing so, which could wipe out any gains you made from interest payments. You’ll need to check with your bank or building society to see what their conditions are.  

How much can I invest in a fixed rate bond?

Fixed term bonds generally have a minimum opening amount – and most will also have a maximum opening amount too.

Some fixed rate bond accounts can be opened with as little as £1, but typical minimum deposits start at about £500. Maximum deposits can go in to the millions, but only the first £85,000 will be protected by the FSCS (where applicable). You may find the most competitive rates require a larger deposit – although, this isn’t always the case.

Once you’ve made your initial deposit you can’t usually add to it.

Data collected by Mintel/Lightspeed in October 2019, accurate as of January 2020

Do I have to pay tax on a fixed rate bond?

Thanks to the introduction of the Personal Savings Allowance in 2016, basic rate taxpayers can earn £1,000 of savings interest a year without having to pay tax, while higher-rate taxpayers can earn £500 a year.

Additional rate taxpayers are not eligible for the Personal Savings Allowance.

If the interest you earn goes above these limits, any tax you owe will usually be collected via the Pay As You Earn (PAYE) system or via your self-assessment tax return – unless you opt for a tax-free fixed rate ISA.

How can I compare fixed rate bonds?

Once you’ve decided how much money to invest and how long you can tie it up for, you can compare fixed rate bonds and interest rates to see which account makes the most sense for you.

The amount of interest you earn with each bond will be calculated as a yearly percentage or annual equivalent rate – AER – and you’ll then earn this amount of interest on your deposit for each year your money is in the account.

Our savings calculator can help you see what interest you could earn when you take out your chosen savings product.

How is interest paid on fixed rate bonds?

Your savings will earn a set interest rate each year during the fixed term, and the interest you earn will be added to your savings or, in many cases, paid either monthly or annually into a ‘nominated’ account.

If you have it paid into your savings account, you won’t be able to take that or your initial lump sum out of the account until the end of the fixed term.

Is a fixed rate bond right for me?

A fixed rate bond might not be for everyone – potential downsides include:

• No access to your savings for the fixed term: you won’t be able to take any money out of the savings account over the fixed term and you won’t be able to close the account early
• No further deposits: you usually have 30 days from opening your account to deposit your funds and you won’t be able to add money after that. This means fixed rate bonds are a good option for those who have a lump sum to invest, but not for regular savers
• Interest rate changes: interest rates are currently at historic lows (in June 2020, the bank of England base rate is just 0.10%), so the return on a long (four or five year) fixed rate bond may become uncompetitive during the term. That said, fixed rate savings often offer the best returns in a low interest rate environment.

What should I do at the end of the fixed term?

When your fixed rate bond term comes to an end you can choose to withdraw your lump sum – and the interest if you opted to have that paid into your savings account – and close the account, or you can choose to move your savings into another account.

You’ll need to make sure you let your provider know what you want to do with the money because if they don’t hear from you then they might move the amount to a new bond, which is likely to have a lower interest rate – if any rate at all.

Compare the best fixed rate bonds

Compare fixed rate bonds to find the best one for you. You can use MoneySuperMarket’s fixed rate bonds comparison tool to enter your savings deposit amount and compare deals. You can order the results ordered by the interest rate they offer, or by the savings provider.

You can change the results you see to only show terms that suit your saving needs – choose from one year, two years, three years, four years, five years and more. You’ll also be able to filter the results by the interest payment schedule to compare interest rates.

Data taken from Consumers, Savings and Investments Report by Mintel, accurate as of January 2018.

Can you take the money out of your fixed rate savings bond early?

In some cases, you may be able to access your funds before the end of the bond term, but you’ll usually pay a hefty penalty fee for doing so. You’ll need to check with your bank or building society to see what their conditions are.  

What to do at the end of the fixed term?

When your fixed rate bond term comes to an end you can choose to withdraw your lump sum – and the interest if you opted to have that paid into your savings account – and close the account, or you can choose to move your savings into another account.

You’ll need to make sure you let your provider know what you want to do with the money because if they don’t hear from you then they might move the amount to a new bond.

Compare fixed rate bonds

Compare fixed rate bonds to find the best one for you. You can use MoneySuperMarket’s fixed rate bonds comparison tool to enter your savings deposit amount to compare deals. You can order the results by the interest rate they offer, and by the savings provider.

You can change the results view you see to only show terms that suit your saving needs – choose from one year, two years, three years, four years, five years and more. You’ll also be able to filter the results by the interest payment schedule to compare interest rates.