Fixed Rate Bonds Get A Boost Despite Interest Rate Lows

05 May 2011 / by Paul Dicken

With growing expectations that the Bank of England will further delay an increase in interest rates, providers are aiming to defy the low rate environment boosting fixed rate bonds.

The Bank Rate – the official interest rate – was dropped to 0.50 per cent back in March 2009 and in the Monetary Policy Committee (MPC) meeting over the 4th and 5th of May there was no change to the low rate.

A tepid economic recovery means the Bank is reluctant to raise rates, thereby weakening the economy further.


With inflation running at around two per cent over the official target (the latest Consumer Prices Index rate of inflation was four per cent), the longer and medium term fixed rate bonds can be said (for now) to be inflation-beating.

Long term

Building society Birmingham Midshires has a 5 Year Fixed Rate Bond on the market, offering 5.05 per cent  AER, eligible for deposits from £1. Withdrawals incur an interest charge.

Scottish Widows Bank’s 5 Year Fixed Term Deposit Account offers savers an annual 4.50 per cent interest rate AER, but only on deposits of £10,000 or more. There are options to receive slightly lower rates for interest paid quarterly or monthly.

Medium term

Birmingham Midshires 3 Year Fixed Rate Bond pays 4.10 per cent AER for the fixed term, while the Post Office 3 Year Online Bond is offering a rate of 4.00 per cent AER, on deposits from £500.

Short term

Some of the shorter term fixed rate bonds can provide rates below the CPI inflation rate, but still competitive.

Three of the two year bonds available are the from Birmingham Midshires, paying 3.85 per cent AER, the Post Office, returning 3.65 per cent AER and Santander, providing a 3.50% rate on deposits up to £24,999 and 3.70% for larger deposits over £25,000.

A competitive one year bond from Barnsley Building Society offers savers 3.40 per cent, fixed until 30 April 2012, with additional deposits may also be allowed while the bond is open to new investors. Minimum deposit of £1000.


It should be remembered that fixed rate accounts involve tying your money up the plan term. Withdrawals are not allowed, or can be made at a charge, which could eat into your savings.

If you think you will need access to your savings in the short term, instant access savings accounts may be a better option.

Compare competitive instant access savings accounts »

© Fair Investment Company Ltd

Written by Editorial Team