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Finding the best fixed rate bonds

Find the best fixed rate bonds that offer a high interest rate to make your money work harder over a set term

Guide - Top tips for getting the most from your cash ISA

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.

What is a fixed rate bond?

A fixed rate bond is a savings account that locks your money away for a fixed term in return for a higher rate of interest than an ordinary savings account.

Fixed rate bonds are sometimes referred to as savings bonds. They pay interest on the sum you deposit, but you cannot usually get hold of your money until the end of the term.

Why would I buy a fixed rate bond?

Fixed rate bonds, also known as fixed rate savings bonds or fixed rate savings accounts. They usually offer a higher interest rate than instant access savings accounts, in return for locking away your money for a set period, usually between one and five years.

It used to be the case that fixed rate bonds were very attractive to many savers. When interest rates were higher than they are now, fixed rate bonds offered some of the best interest rates around. They offered the reassurance of knowing how much interest you were going to earn on your savings over the fixed term.

In recent years, however, interest rates have fallen to historically low levels. This has meant that the interest rates on both instant access savings accounts and fixed rate bonds have fallen.

Although fixed rate bonds still generally offer better interest rates than ordinary savings accounts, the reward for locking your money away for a longer period is not as big as it used to be. Nowadays savers need to balance the opportunity to earn a few extra percentage points of interest with the inconvenience of locking away their money for a year or more.

What is the best type of fixed rate bond to buy?

People tend to buy fixed rate bonds because they want to get a higher rate of interest, and want the security of knowing that they will receive the same amount of interest until the end of the fixed term.

With a fixed rate bond, you know that the interest rate will stay the same for the whole term of the bond, even if interest rates fall on other savings accounts during that time.

Of course, if interest rates were to rise, your savings bond interest rate would stay the same and you would not benefit from any increase in rates.

One and two-year fixed rate bonds tend to be the most popular choice at the moment. Many people don't want to commit for longer in case interest rates start to rise, although this is unlikely in the short term due to the potential for a recession as a result of the COVID-19 pandemic and lockdown.

The longer the fixed rate period, the higher the interest rate is likely to be, so if you're looking for the best possible rate, a five year fixed rate savings account might be a better bet.

Is a fixed rate bond right for me?

If you want a good interest rate, don't need access to your money and want the reassurance of knowing what your interest rate will be, then a fixed rate bond could be an option for you.

However, it's important to compare fixed rate bond interest rates with best buy rates on other types of savings accounts, such as notice accounts and regular savings accounts, to make sure you are getting the best deal.

On the other hand, if you know you'll need access to your savings before the fixed-rate period is up, then a bond might not be the best choice. This is because some accounts do not allow you to make withdrawals at all, while with others, withdrawals often come at a cost - your interest rate may be reduced, you might not earn any interest in the month of the withdrawal or you might be switched to an account with a lower rate.

How do I buy a fixed rate bond in the UK?

You open a fixed rate bond account in the same way as you would do with an ordinary savings account - either online or in the branch. You will need to have the initial minimum deposit saved up.

Many financial services companies now offer some of their best rates on bonds, which are internet-based and online only. So it pays to shop around and compare fixed rate bond rates on our comparison tool.

Can I add to my fixed rate bond once I have opened it?

When you buy a fixed rate savings bond you put your money into the account for a fixed term, and you may not be able to add any more to the amount you hold in that bond.

Many fixed rate savings bonds also require a lump sum to start the account, usually between £500 and £5000. So if you're starting to save from scratch, this might not be the best option. If you do want to open a fixed rate bond, make sure you have saved up as much as you can.

How can I find the best fixed rate bonds?

The right account is different for everyone, use our checklist to find the best fixed rate bond for you:

  • What is the interest rate? Some accounts have tiered interest rates depending on how much you have in your account, so make sure you know what the rate will be for your balance.

  • When does the fixed rate end and what rate does it revert to? Find out exactly when the fixed rate ends and make sure you make a note of the date. Once the fixed-rate period is up the account will probably revert to a lower rate. So make sure that you compare accounts and switch to one with the best rate you can find when it does.

  • Can you make withdrawals and are there any withdrawal penalties Find out if you can make withdrawals, and if so, what withdrawal penalties there are and what impact they will have on your savings.

  • What is the minimum investment? Many fixed rate savings bonds require a lump sum deposit, so make sure you find out what the minimum is before you apply.

  • When is the interest paid? For example, will you receive the interest you earn monthly, annually or when the bond matures?

  • Can you make regular savings? Some fixed rate savings bonds allow you to pay more into your account, while others won't let you make any more deposits after you've opened the account.

  • Do you need to have another account with the provider? Some banks and building societies restrict their fixed rate bonds to existing customers or require you to open another savings or current account.

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.

What are the different types of fixed rate bonds?

Fixed rate bonds have different terms, from one year to up to seven or ten years. Although fixed rate bonds for one year, two years and five years are the most popular bonds.

You can check the latest fixed rate savings bonds rates by comparing interest rates online. Rates do change depending on the interest rate set by the Bank of England and other economic factors. But generally speaking, you will get a better rate of interest the longer you are prepared to tie up your money.

How do I compare the best fixed rate bonds available in the UK?

The best high interest savings bonds are available from banks, building societies and other financial companies in the UK.

You can compare rates using our comparison table.

When you compare rates, check whether the rates are tiered, and what happens to your money once the bond matures. You may wish to transfer your money to another provider or different type of bond at the end of the term in order to get a better rate.

How can I make sure I am choosing the right type of savings bond?

High interest bonds are suitable for many people as long as they understand that the money is tied up for a fixed term. They will not be able to withdraw it early without paying a penalty, which might include loss of interest.

If you invest your money in a savings bond with a financial services provider, which is part of the Financial Services Compensation Scheme (FSCS) then your money will be protected up to £85,000 per account.

The best bonds to invest in are those which suit your savings needs. In other words, don’t choose a long term fixed rate bond as a home for money that you may need in the short term.

Make sure that you have enough money set aside for emergencies which you can access in a hurry. This rainy day money could be in an instant access savings account or a savings account linked to your existing bank account.

What are the alternatives to fixed rate bonds?

If you're prepared to lock your money away for the medium to long term, and you're looking for a savings account where your cash can growth tax-free, then you could consider an Individual Savings Account (ISA).

You can read more about how ISAs work with our ISA Savings guide.

You can put your money into stocks and shares or cash in an ISA, or a combination of both. If you want to put your money into cash without any stockmarket investment, you could opt for a Cash ISA.

You can read our guide for more about how Cash ISAs work.

Are you earning enough interest?

It could be time to find a new savings account, find and compare ISAs with our partner money.co.uk.