What is a fixed bond?

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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What is it?

It is a type of savings account that ties your money up for a set term.

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

Who is eligible?

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

What types 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 bondfind out more here.

How long can you fix a bond for?

Most fixed bonds come in a range of different terms, from 1 to 5 years.

However, you can also find fixed bonds with terms as short as one week.

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 that lasts over five years is considered a long term investment, and if you are prepared to lock your money away for this long you should speak to a financial advisor.

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.

Do you pay tax on fixed bonds?

Yes, but only if you exceed your personal saving's 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.

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 four options:

  • Reinvest the whole amount

  • Reinvest the whole amount and add more money

  • Reinvest but withdraw some of the money first

  • Close the fixed term bond completely

At this point, make sure you compare fixed bonds and all other savings accounts to find the best rate and level of access to your money.

Can you take money out before the term ends?

Yes, but you will usually have to close the entire fixed bond and will receive an interest penalty when you do.

Make sure you check the early access charges that come with an account before you apply.

Charge for closing a fixed rate bond early

If you close your bond before the end of the term you will be charged a penalty.

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

Updated 8 April 2020
Term of bondInterest charge
1 year90 days
2 years180 days
3 years270 days
4 years320 days
5 years365 days

If you close a fixed term bond early you could even get less back than you invested after the interest charge. Penalty charges vary between providers so make sure you ask 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 be charged if you give 90 days' notice to close your bond early.

You would lose 90 days' interest if you did not give notice to close the bond early.

It is not impossible to access your money in a fixed term bond, but be prepared to take a hit on the amount of interest you get as a result.

What if you find a better interest rate elsewhere?

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

You will either be sent a cheque in the post or the money will be transferred into your bank account 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 it might not still be available if you had to wait for your money to get to you first.

This is especially likely if you are sent a cheque, as you will have to wait for the funds to clear first.

Are fixed bonds protected?

Yes, but only if the savings provider is registered for protection under the Financial Services Compensation Scheme (FSCS).

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

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