What is a fixed bond?

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You can usually find a better interest rate if you lock your money away in a fixed bond. Here is what you need to know before you apply.
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A fixed bond offers a way to squeeze more interest out of money you put into a savings account, as the understanding is that you won’t touch it until the end of the term. This makes it a good option if you can afford to leave your cash where it is.

What is a fixed bond?

It is a type of savings account that ties your money up for a set term during which you agree to not make a withdrawal.

Fixed bonds usually pay a higher interest rate compared to many accessible savings accounts but you’ll not be able to take cash out or add more money during the fixed term.

Who can open a fixed bond?

Fixed bonds are usually available to anyone aged over seven years old, but you must be a UK resident.

What types of fixed bond can you get?

There are two common types of fixed bonds:

  • Fixed rate bonds offer you a fixed interest rate for the term of the bond.

  • Tracker rate bonds offer you a fixed interest rate above the Bank of England base rate for the term of the bond. For example, it may offer a rate of 1% above the base rate until the end of the term.

You can also get a tax-free fixed rate ISA bond, about which you can find out more here.

How long can you fix a bond for?

Most fixed bonds come in a range of different terms, from one to five years for example.

However, you can also find fixed bonds with shorter terms of, say, six months.

Some savings providers offer higher interest rates on longer-term bonds. However, you can sometimes find a better rate for a shorter term by comparing fixed bonds.

Any bond lasting for more than five years is considered a long-term investment. If you’re prepared to lock your money away for this long you should speak to an independent financial advisor and consider investment options before signing up

How much can you save in a fixed bond?

There is usually a limit on the amount you can save in a fixed bond but this will vary from one provider to another. Some cap you to a maximum saving of a million pounds per bond. Given you typically deposit the whole saving amount in one go, much smaller fixed rate sums of £500 to £1,000 are far more typical.

Do you pay tax on fixed bonds?

Yes, but only if you exceed your personal tax allowance. The personal savings allowance lets most basic rate taxpayers earn £1,000 of interest without paying any tax, and £500 of interest for higher rate taxpayers. Additional rate payers do not get a savings tax allowance. You can find out how tax can affect your savings here

What happens at the end of the fixed term?

Did you know?

The end of a fixed term bond is also called the maturity date

You will be notified by post or email about a month before the term ends.

Savings providers will want you to reinvest your money with them, and will give you three reinvestment options (or you can close the bond and withdraw your money):

  • Reinvest the whole amount

  • Reinvest the whole amount and add more money

  • Reinvest but withdraw some of the money first

If you are thinking of reinvesting, make sure you compare fixed bonds and all other savings accounts to find the best rate and level of access to your money. Do so before your term ends as your current provider may offer a better deal than you can get elsewhere, and you may need to let them know before the money is paid out.

Can you take money out before the fixed bond term ends?

If you close your bond before the end of the term – and after the 14-day cancellation period – you will incur a penalty That’ll depend on the terms of your fixed bond.

Here is an example of the charges you could face if you closed a fixed rate bond early:

Updated 22 December 2021
Term of bondInterest charge
1 year90 days
2 years180 days
3 years270 days
4 years320 days
5 years365 days

Penalty charges vary between providers so make sure you read the small print before opening your bond.

Charge for closing a tracker rate bond early

Most tracker bonds will let you give notice to close the account down, or charge you based on the same notice period, for example:

  • You will not typically be charged if you give 90 days' notice to close your bond early

  • You would potentially lose 90 days' interest if you didn’t give notice to close the bond early

It’s not impossible to access your money in a fixed term bond, but be prepared to take a hit on the amount of interest you would have earned as a result.

What if you find a better interest rate elsewhere?

If you find an alternative provider is offering a fixed term bond that pays a better rate of interest the following steps typically need to be taken:

  • You usually need to complete a form to close a fixed term bond

  • Once this request is made, you’ll either be sent a cheque in the post or the money will be transferred into the bank account you nominated for after the fixed term ends (you can choose which option you prefer on the form)

  • Once you have your money, you can complete a new application form for your chosen account and deposit your money.

Be careful, if you do find a better rate elsewhere, as it may no longer be available if you have to wait a while to get your money.

This could be the case if you’re sent a cheque, as you’ll have to wait for the cheque to arrive and the funds to clear.

Are fixed bonds protected?

The money you place in a fixed bond is protected provided the bank or building society is authorised by the Financial Conduct Authority and registered under the Financial Services Compensation Scheme (FSCS).

You need to be careful how much you save with a provider, as the protection is limited to £85,000 per person.

Maximise the value of your savings by hunting down the best rates available.