Fixed Rate Bonds Compared
Fixed Rate bond Savings accounts are provided by regulated banks and building societies in the UK and as their name suggests provide a fixed rate of interest for a set period of time. The advantage of this is that you know where you stand and the amount of interest that you will earn no matter what is happening to interest rates at the time. Fixed rate savings bonds generally will reward you with a higher rate of interest the longer you are prepared to lock your money away. The risk that you take with a fixed rate bond is if during the saving term interest rates rise, you may find yourself stuck on an uncompetitive rate. With a fixed rate bond you benefit from interest being added either monthly or annually.
Type of Savings Account |
Savings Account Features |
Savings Account Access |
Instant Access Savings Account |
Will normally offer higher interest than what can be obtained on a current account. |
Instant access or easy access |
Cash ISA Savings Account |
A Savings Account within a Cash ISA where interest can be earned tax free. |
Depends on account. Some have instant access and others will operate on a notice basis. |
Fixed Rate Notice Savings Account |
With these types of savings account you have to give notice before you can take money out e.g. 7, 30, 60 and 90 days. |
An interest penalty will often be applied if notice is not given. |
Fixed Rate Bonds |
Usually 1, 2, 3, 4 or 5 year saving terms with a minimum deposit. |
Designed for money to be held for full term. Early withdrawal may result in a penalty. Some fixed rate bond providers will allow interest to be paid monthly, quarterly or annually. |
Structured Deposit Plans |
Usually 3, 4 or 5 year saving terms with a minimum deposit. |
Early withdrawal may result in a penalty. Designed for money to be held for full term |
As the above accounts are deposit based you will get back your original deposit plus any interest owed unless the bank or building society gets into serious financial difficulty. In the unlikely event that this happens the FSCS may be able to pay compensation of up to £85,000 per account holder.
Things to look out for when choosing a Fixed Rate Bond
There is a wide range of savings account deals to choose from so we have highlighted some of the features to look out for:
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Minimum deposits – some fixed rate bonds require a minimum level of funding
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Withdrawals - Some fixed rate bond providers will allow restricted withdrawals e.g. 1 withdrawal a year
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Interest calculation method – some banks offer fixed rate bonds with monthly interest, others pay quarterly or annually.
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Tax – Interest paid on your savings is treated as income and you may have to pay tax on it depending on your circumstances. If you don’t pay tax you can receive interest gross if you complete tax form R85. Some accounts will pay interest gross and it is up to you to declare any tax owed to the Inland Revenue.
With interest rates at the time of writing at an all-time low the impact in real terms of inflation on your money is not to be underestimated in eroding the buying power of your hard earned cash. Fixed rate bond provide an option of getting a better rate of interest on your money but you need to be comfortable locking your money away. See best fixed rate bonds for latest deals.