If you are looking to get the best return possible for your savings over 24 months, 2 year fixed rate bonds may be a good choice. However, there are several things you need to consider before locking your money away.
Choosing a 2 year fixed rate bond over an account that offers more access to your money can be a good way to get a better interest rate while not locking your savings away for too lengthy a period.
Fixed rate bonds often offer better interest rates than their accessible counterparts, and they give you reassurance that the return you're getting on your money isn't going to fall at all for the duration of the account term.
However, because you are tying your money up for a significant stretch of time it’s essential to make sure you get the best 2 year bond possible, here’s how.
Managing your money
Before putting your savings in any 2 year bonds you need to be confident that you can lock your money away for this length of time without needing access.
If you think that you may need to draw on your savings before 24 months have passed, two year term savings accounts may not be the best choice.
Instead of 2 year savings bonds, you may be better off looking at accounts that allow greater access to your savings such as instant access or notice savings accounts. Alternatively, shorter term, 1 year bonds may be an option worth considering.
Remember even if you secure a fantastic interest rate from the best 2 year fixed rate bonds on the market, if you have to withdraw your savings after 6 or 9 months you’re likely to face severe interest penalties that will seriously degrade the return you'll get on your savings.
Is a 2 year fixed term the best choice?
You also need to consider if you are happy with a fixed rate of interest offered by 2yr fixed rate bonds or if you would prefer the freedom to chase a better return.
Although two year savings bonds may advertise the best interest rates available when you come to open your account, if rates rise elsewhere during the term you could find that you are missing out. as you'll be unable to move your money to a new account without being penalised.
However, if the savings rates available on the market go down after you have opened your account you'll be in a winning situation as your 2 year bond rates will be fixed for the term, making your account even more attractive.
Essentially if savings rates fall while you hold a 2 year savings bonds you will get a better return but if they start to climb after you’ve opened even the best two year bonds, you risk missing out on the best savings accounts over 2 years.
While a 2 year period isn't a great length of time to lock your money away, you still need to consider the possibility of interest rate changes before opting for any 2 year savings accounts.
That said, 2 year fixed rate bonds can be an ideal compromise between long term rate reassurance and the flexibility to move your money if interest rates rise.
Choosing the best 2 year fixed rate bonds
If you decide that two year term savings accounts are the best home for your savings then getting the best rate for 2 years bond is essential if you want to get the the best return on your money.
Although securing the best interest rate possible should be your main concern, you should also check how you manage each account.
Some 2 year bonds only operate online or in person, while this may not be a big issue while your money is in the account, when the 2 year term ends it may affect how easily you can move your money to a new home.
You should also look at the restrictions the account provider places on access to your money during the account term.
If you're certain that you won't need to draw on your savings at all for the full 2 years then an account that does not permit withdrawals during the account term will be fine.
However, if you want the reassurance that you would be able to get to your savings in an emergency then you should either go for an account that would apply a penalty for withdrawals or one that allows you to access your money early providing you close the account when you do so. Both of these options would mean losing a significant amount of the interest you've earned, if not all of it, if you decided to access your money early but they do give you more flexibility.
Once you've made your choice and opened your new 2 year fixed rate bond you'll need to make a note of the expiry date in your diary. It's essential that you look to move your money to a new home as soon as possible after the 2 year account term ends as the rate of interest paid on your savings is likely to drop considerably after this time.