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Guide to savings bonds

Savings bonds explained

published: 17 May 2022
Read time: 5 minutes

Saving bonds can be a smart way to save if you can lock your money away for a fixed time. Here’s everything you need to know

What is a savings bond?

A savings bond is like a savings account - you deposit money with a bank, building society, or in a government-backed National Savings bond, and receive interest on your cash. 

The main difference between bonds and other types of savings is you’ll need to lock your money up for a set period. You’ll also usually have to deposit a minimum lump sum, such as £500 or £1,000, when you open the bond.

Savings bonds – sometimes known as fixed rate bonds - usually last between six months and five years. The longer you lock your money away, the better the interest rate you’ll get. But the interest rate will be fixed from the start of the bond – so you won’t be able to benefit if interest rates rise while your cash is locked up in the bond.  


How do savings bonds work?

Generally, the longer you commit to locking your savings away, the higher the interest rate will be. 

While the money is in the savings bond, you won’t be able to access it, but you’ll earn a fixed amount of interest. To access your money, you will need to write to your provider. It’s important to know that asking for an early withdrawal could lead to a penalty charge or loss of interest.

Early withdrawals also risk the account being closed meaning you’ll be unable to collect the full amount of interest that has accrued. It’s a good idea to get to grips with all terms and conditions before you save in a bond. 

How much money you’ll need to open a savings bond will vary depending on the provider and individual savings product. Some fixed rate bonds can be opened with as little as £1, while others will require £100 or even £1000. In some cases, you may even need £5,000 or £10,000, for example. You won't usually be allowed to top up your savings bond once you’ve made your initial deposit.

How long should I fix my saving bonds for?

Saving bond terms usually range between six months and five years. Typically the longer you can lock away your money the higher the interest rate you can get. But tread carefully - you could lose out if you fix for five years, for example, and then interest rates start to climb. This is because in a rising interest rate environment your bond could soon look uncompetitive but you’ll be locked in.   

Think about how long you are prepared to tie up your cash with no access. Check the rates on offer at different terms. Then you can balance where you feel comfortable in terms of your savings. 

Are savings bonds right for me?

Whether or not a fixed rate savings bond is right for you will depend on what interest rate you want and when you might need the cash.

Savings bonds can work well if you have a savings goal in mind – such as a wedding, a car, a holiday or your child’s education, for example.

Saving bonds typically suit people who can afford to lock away a portion of their money for a fixed time. They might be less attractive to those who have had cash flow issues in the past, or if you’re in insecure employment – in this case you might want to consider an easy-access savings account or a cash ISA instead, to give you more flexibility to access money in an emergency.   

If you need more help deciding, the MoneySuperMarket savings decision tree could be helpful.

What are the pros and cons of savings bonds?

There are a range of things to consider with fixed rate bonds, including:


  • One of the biggest benefits of savings bonds is that they usually offer higher interest rates than other savings accounts. Typically, the longer you can afford to keep your cash in a savings bond, then the higher the interest rate 

  • If you get a fixed-rate savings bonds, you will know at the beginning exactly how much you’ll get when the account ends (matures)

  • You will get your original capital back at the end of the term as well as any interest you’ve accrued

  • Savings bonds can help your money grow and build up your savings if you can afford to tie up your money for a specific period of time 

  • You could benefit from attractive rates in a fixed bond if interest rates in the wider market start to fall as you’ve locked in to a better rate


  • Because returns on fixed-rate bonds can’t change over time this is a double-edged sword. You might settle on an attractive rate, but if interest rates in the wider market start to increase you could find that your account becomes uncompetitive

  • Your fixed rate bond may give poorer returns than savings accounts if interest rates rise. Imagine, you’ve gone for a four-year bond which pays 1.2%. It looks like a good deal now, but if interest rates start rising you may regret the decision. If after a couple of years there are easy-access accounts on the market offering 2.5%, this means your bond is paying a poor return 

  • Money in a savings bond has to be locked up for a time – this could be a problem if you need the cash, for example in an emergency

  • You can’t access your money until the end of the account term without paying a penalty. Early withdrawal penalties are usually in the form of loss of interest

What are National Savings and Investments bonds?

The UK government offers a few bond options through its National Savings brand:

  • NS&I income bonds: Income bonds are variable-rate savings products. The government can – and does – change the rate of interest, but it tends to be fairly competitive. You need a minimum of £500 to open an account, but you can withdraw money in increments of £500 with no notice and at no penalty to your interest. Interest is also calculated daily, so it grows slightly faster than most other accounts

  • NS&I premium bonds: Premium bonds are essentially a lottery. You’ll be entered into a prize draw every month for every premium bond you own. Monthly prizes range from £1 to a jackpot of £1 million, but the odds work out to an annual average return of 1.4%. Because it is a prize draw you might get a much better return one month, or you might win nothing at all. All winnings are tax-free, and you can’t lose money – though you’re not guaranteed to make anything either 

What tax will I pay on my savings bond?

Due to the personal savings allowance you may not need to pay any tax on your savings bond. Everyone has a personal savings allowance which allows you to earn interest on your savings free of tax up to a certain limit. Your allowance will depend on what rate of income tax you pay. 

There are three income bands in the UK. If you’re on the first two; basic rate and higher rate, you don’t have to pay income tax on a big chunk of the interest you earn. However, if you’re an additional rate taxpayer, you don’t get a savings allowance.

Other useful guides

We have a range of detailed guides for savers, such as:

Guide to NS&I

High interest savings accounts guide

How safe are your savings?

Compare savings bonds with MoneySuperMarket

Finding your next savings bond is easy with MoneySuperMarket. When searching for a new savings account you can easily see the interest rate, maximum or minimum deposit amount and any other terms and conditions.

You can use our handy filters to narrow down your options and pick an account that’s most suited to you.

When you find the savings account or fixed rate bond you want, all you need to do is click through to the provider to complete your application online.

Frequently asked questions

Are savings bonds a good investment?

Savings bonds can be a good investment if you’re prepared to lock away your money for a while. It’s also important to remember the role that interest rates play. If interest rates remain low, then you can get a worthwhile investment from your savings bond. If interest rates rise then your saving bond could cost you money.

Can I lose money on a savings bond?

You can’t lose money on a savings bond but you may get poorer returns if interest rates go up. For example, if you choose a five-year bond which pays 1.0% and after some time, there are now easy access accounts offering 2.0%, then you are now getting poorer returns on your bond.

What happens when savings bonds mature?

What exactly happens when your savings bonds mature will depend on your provider. Generally speaking, your savings will be transferred to another account and it’s up to you whether you reinvest in another bond or close the account.

How do I cash in savings bonds?

You’re able to cash in the money as soon as the bond matures. It’s up to you whether you reinvest your funds or switch to a regular savings account.

Fixed rate bonds