Fixed Rated Bonds – Are They Right for You? Where do you buy them from?

By | Last Updated: 14th September 2019 | This post may contain Affiliate Links

Want to find out more information about Fixed Rate Bonds? As the name suggests, this type of bond is designed to last for a fixed period of time.

This means you’ll normally ‘earn’ the same amount of interest for the entire duration, even if the Bank of England increases or decreases the rate amount.

Most providers will typically offer fixed rate bonds for between one and five years, it goes without saying, the longer you’re prepared to ‘invest’, the higher interest rate you’ll receive.

In some cases, you may notice that to open an account, you’ll need to deposit a certain figure, this can be as high as £1,000. In addition, most accounts won’t allow you to ‘add’ money to them once you’ve made an initial deposit. This is why it’s generally ‘recommended’ to open the bond with as much money as you can afford.

One major drawback of fixed-rate bonds is the fact you won’t be able to ‘access’ your money, so it’s certainly not for people who may need to withdraw cash.

However, if you have money ‘spare’ then the interest rates offered tend to be higher than alternatives. In addition, it can be nice to have ‘peace of mind’ that the interest rate won’t change.

If you plan to have a UK fixed rate bond for 12 months, it can ‘sometimes’ be advisable to check alternative saving methods, such as instant access savings and ISAs. You ‘may’ get a similar interest rate, however with these accounts you’ll have instant access to your cash. Obviously, rates and rules will depend on each individual provider, so please read all terms and conditions before joining.

Fixed Rate Accounts

Are any Fixed Rate accounts tax free?

Yes, in some cases they are. If you decide to open a fixed-rate ISA returns are free of income tax. Fixed rate ISAs pretty much operate in the same manner as fixed rate bonds, you can save up to £20,000 in a fixed rate ISA for the current tax year (2018/19).

If you decide to open a fixed rate bond (outside of an ISA) the first £1,000 of savings will be interest free. This is £500 for high-rate taxpayers.


How long should I save for?

This question can only be answered by yourself, you’ll need to think about your financial situation, needs, requirements and your ultimate goal. What’s the purpose for saving in the first place? Are you saving for a deposit for a home, do you need to withdraw money in a couple of years’ time?

Remember interest rates have been at historically low levels for the last few years, so if you can ‘afford’ to invest for longer, you may enjoy much better interest returns. However, on the contrary, should interest rates rise quickly, you may find yourself ‘trapped’ into a bond with uncompetitive rates.


Is it safe and secure?

If you select a provider which is authorised by the Prudential Regulation Authority, like most Banks and Building Societies are. You’ll find any investments up to £85,000 (or £170,000 for joint accounts) is protected by the Financial Services Compensation Scheme (FSCS).

You can find out which banks are part of which authorised firms on the official Bank of England Website.


Do Fixed Rate Bonds have Charges?

Typically no, as your money will be ‘tide up’ for the entire duration of the bond. However, should you withdraw the money before the end of the bond term, you’ll probably have to pay a charge and, in most cases, ‘lose’ any interest you’ve accrued.