Fixed rate bonds are a type of savings account, and are often known as savings bonds. They tie up your money for a set length of time, known as a 'term' and you are paid a fixed interest rate for the duration of that term.

Why would you invest in a fixed rate bond?

The main reason people opt for savings bonds is that interest is usually more than you'd get with other, more accessible, savings accounts. But with fixed rate bonds, you can't usually take any money out, or put any money in, during the fixed term.

What kind of fixed rate bonds are there?

There are two main types of fixed rate bonds

Normal fixed rate bonds give you a fixed interest rate for the term of the bond.

Tracker rate bonds give you a fixed interest rate at an agreed level above the Bank of England base rate. For example, it could offer a rate of 1% higher than the base rate, until the end of the term.

Thus if the base rate is 0.10% you'll be offered a rate of 1.10%

When you compare fixed rate bonds, you'll be able to find the best bond rates for your financial goals and then choose the one that suits you.

You might also like to look at another type, called a tax-free fixed rate ISA bond.

How is interest paid?

In most cases interest is paid out every year so you can benefit from compounding interest over the course of the year. Some only pay the interest at the end of the term when the bond matures.

Some bonds, however, require the interest to be paid away in a separate current account. This means you don't benefit from compounding.

You can also choose to have the interest paid monthly. Savers can then have the interest paid out as income from their savings until the bond matures.

Will I have access to my money?

This depends on which of the fixed rate bonds you choose, but usually you won't.

Fixed rate bonds with no access to your money give you a fixed interest rate for a set amount of time (such as a year). You can't access your money until the fixed term ends.

There are also fixed rate bonds with access to your money with a penalty. These also give a fixed interest rate for a set amount of time (such as a year). The difference is that you can get to your money but you have to pay a penalty if you decide to take it out. The penalty could be, for example, 90 days' worth of interest, although it could be as much as a year's worth. You usually have to close your bond if you take your money out early, too.

What are the term lengths on fixed rate bonds?

You've probably heard of 1 year fixed rate bonds, 2 year fixed rate bonds and 3 year fixed rate bonds. But, actually, fixed rate bonds come in a range of different terms, all the way up to 5 year fixed rate bonds or 7 year fixed rate bonds.

Some fixed rate bonds have a set maturity date. This could be '30th April in four years' time', for example, rather than four years after the date you open the account.

Short-term fixed rate bonds

You can also find fixed rate bonds with terms of weeks or months. They could be as short as one to three weeks, or one to 18 months. You'll probably get a higher interest rate on longer-term bank bonds. But it's best to compare fixed rate bonds if you need to find a good rate on a shorter term.

Long-term fixed rate bonds

Bank bonds that last more than five years are thought of as long-term investments. If you're happy to lock your money away for this long, it's best to talk to a financial advisor. They'll be able to chat about all your investment options.

How to find the best fixed rate bonds

When you're looking for the best fixed rate bonds, there are a few things to think about. So before you compare fixed rate bonds, ask yourself the following questions:

  • How long can you leave your money untouched? Some fixed rate bonds don't let you access your cash once they're opened.

  • What's the interest rate? The best fixed rate bonds have higher rates of interest. This gives you more for your money.

  • How much do you want to save? Some fixed rate bonds can be opened with as little as 1 whereas others need a lot more.

  • How often do you want your interest to be paid out? The best fixed rate bonds usually let you choose whether to have it paid yearly or monthly.

Cashing in savings bonds

When your fixed term ends, it is sometimes said that your bond's 'matured'. About a month before this happens, you'll get a letter or email telling you so.

But banks want you to reinvest your money with them, so they'll usually give you a few options to think about. These are:

  • Reinvesting all the money

  • Reinvesting all the money and adding more

  • Reinvesting in some of the money, and withdrawing some

  • Cashing in savings bonds and closing the account completely.

Before you decide what to do, you need to compare fixed rate bonds and all other savings accounts. This is so that you can get the best rate and the best access to your money. You can compare fixed rate bonds using the comparison table at the top of this article.

How to cash in matured fixed rate bonds

  1. If you want to close a mature fixed rate bond account, you'll need to fill out a form given to you by your bank.

  2. Wait for your bank to send you a cheque in the post, or to put the money into your bank account.

  3. Decide what you'd like to do next. If you want to reinvest your money, you'll need to compare fixed rate bonds and all other savings accounts, or speak to a financial advisor.

How long do fixed rate bonds take to cash?

The best fixed rate bonds providers should be able to cash in your savings for you fairly quickly. It usually takes about eight days to get your money.

If your bank gives you the option to have the money put straight into your account, do that. This is because if you see a good fixed rate bond account anywhere else, you'll need to act fast and if you're waiting for a cheque you might not be able to. Most accounts need a deposit when you open them.

Tax on fixed rate bonds

You pay tax on fixed rate bonds, but only if you exceed your personal savings allowance. The personal savings allowance lets you earn a set amount of money each tax year before you have to pay tax on your earnings, including your savings interest.

For example, in the 2020/21 tax year, the personal savings allowance lets you earn up to 1,000 (for basic-rate tax payers, 500 for higher-rate) in interest without paying any tax on it. In addition to this, your total income would need to exceed your personal allowance before you start paying tax. The personal allowance was set at 12,500 for the 2020/21 tax year.

If you earn under 17,500, you can also benefit from the starting rate for savings. This is an additional allowance to add to your personal savings allowance. For the 2020/21 tax year this was set at 5,000 for those who earn 12,500 or less, falling by 1 for every 1 you earn above 12,500.

This means that you will only pay tax on savings interest if the amount of interest you earn exceeds your starting rate for savings (if you earn under 17,500) and your personal savings allowance, and your total income exceeds your personal allowance.

For most savers, the interest you earn will therefore not be taxed. You could save your money in whatever account offered you the best deal without having to worry about paying tax on your earnings. This means that most taxpayers can earn interest from a fixed rate bond in the same way as a fixed-rate cash ISA, which is always tax-free.

Pros and cons of investing in fixed rate bonds

The big pro of fixed rate bonds is that they give you peace of mind in terms of interest rates during the term of your bond. There's also minimal risk involved with bank bonds.

On the flip side, you don't have easy access to your money and - if interest rates rise - you could be stuck with a deal that isn't very attractive anymore. Plus, you might have to pay in a lump sum at the start.

Are fixed rate bonds covered by FSCS?

Many savings providers are registered with the Financial Services Compensation Scheme (FSCS). This means you can relax knowing your money's protected.
FSCS protects the customers of financial services firms that fail. If the company you've been dealing with has failed and can't pay claims against it, FSCS steps in to pay compensation.

But be careful how much you save with each provider, as the limit of protection is 85,000 per person.

Are there alternatives to savings bonds?

Yes, there are alternatives to bank bonds if you want to invest your money. You might like to look at peer to peer savings accounts which can give you a fixed rate of interest for an agreed term. The interest is usually higher than you'd get with fixed rate bonds. But your money won't be protected under the Financial Services Compensation Scheme.

Other options include fixed rate ISAs and high interest current accounts.

Fixed rate bond FAQs


How much money do I need to open a fixed rate bond?


This can vary from 1 up to 50,000. You can use our table filters to find a savings account based on how much you have to open it with.


Can I open a fixed rate bond online


Yes. Just like any savings account, you can open a fixed rate bond online, or by visiting a branch of your preferred bank or building society


Can I have more than one fixed rate bond?


Yes, but make sure you keep some money accessible in case of an emergency. Read this guide for help choosing the right savings account.


Can I have a fixed rate bond if I have bad credit?


Yes, your finances are not checked when you open a savings account. If you need help choosing the right savings account, read this guide.

About our fixed rate bonds comparison


Who do we include in this comparison?


We include every personal fixed term bond that offers a fixed interest rate. They are regulated by the Financial Conduct Authority (FCA).

Here is more information about how our website works.


How do we make money from our comparison?


We have commercial agreements with some of the companies in this comparison and get paid commission if we help you take out one of their products or services. Find out more here.

You do not pay any extra and the deal you get is not affected.

Last updated: 24 December 2020