3 year fixed rate bonds

A 3 year fixed rate bond is a type of savings account that locks in your money at a fixed rate of interest for three years. You may also hear 3 year fixed rate bonds called 3 year fixed term deposits, 3 year fixed rate savings, 3 year fixed rate savings bonds and 3 year fixed rate savings accounts.

By opening a 3 year fixed rate savings account, the rate of interest you earn won’t change for 36 months. That means the rate stays the same for three years, irrespective of changes to the base interest rate. To open a 3 year fixed bond, you can make multiple transfers until you have reached a lump-sum deposit amount and then your money is locked in for the duration of your term.

If three years sounds too long (or too short), you can also apply for fixed rate savings accounts of different terms, such as six month, one year, two year and five year terms. It’s important to choose a suitable duration for your savings goals, as you won’t be able to access your money for the entire duration of the fixed term.

There are several reasons to choose a 3 year fixed rate bond (also known as a fixed term deposit). If you have a lump sum that you can lock away for three years, you could benefit from an interest rate typically higher than ISAs or easy access accounts.

Is a 3 year fixed rate bond right for you?

• You don’t need to access your savings for three years
• You want to know how much interest you’ll earn at the end of the three-year term
• You want to protect your savings from possible interest rate reductions over the next 36 months

You can open a 3 year fixed rate savings account by depositing a minimum lump sum, typically between £500 and £1,000, up to a maximum deposit amount of around £1,000,000 or £2,000,000. At Raisin UK, we fix the maximum deposit amount into savings accounts at £85,000 per person, per banking group to ensure the applicable deposit protection scheme still protects your money. 

The amount you can deposit varies between providers, so do make sure you check and apply for the account that suits your needs. It isn’t possible to make deposits into your account after your initial deposit, nor is it usually possible to close a fixed rate bond early.

Once you’ve transferred your full deposit amount and opened your 3 year fixed rate bond, you’ll lock away your money for the duration of the fixed term during which time it will accrue interest. You’ll gain access to your deposit and the interest you’ve earned at the end of the fixed term.

Opening a 3 year fixed rate bond locks in your savings account for three years, and frees you of the worry of variable interest rates. A 3 year fixed rate bond might be beneficial for you if the following benefits appeal to you:

• Earn a fixed interest rate for three years 

• Know exactly how much interest you’ll earn

• Protected your money from any base interest rate changes

Are other fixed terms available?

Absolutely. Raisin UK offer the following fixed rate savings account terms:

• 6 Month Fixed Rate Bonds
• 1 Year Fixed Rate Bonds
• 2 Year Fixed Rate Bonds
• 5 Year Fixed Rate Bonds

The chart below shows different fixed rate bonds across different terms. It showcases how you can maximise the interest rates of long-term bonds over different periods of time.

The interest you’ll earn on a 3 year fixed rate bond is advertised as an annual equivalent rate (AER). How much you earn will be determined by the following criteria:

1. The duration of your fixed term

2. How much you deposit

3. The interest rate (AER)

4. How the bank pays interest

Taxpayers can earn interest on savings up to certain amounts without paying tax on that interest. Thanks to the personal savings allowance, basic rate taxpayers can earn up to £1,000 of interest per year, and higher-rate (40%) taxpayers can earn interest of up to £500 per year (more on that later).

How is interest paid on a 3 year fixed rate savings bond?

As with all fixed rate savings accounts, when you earn interest depends on the bank. Some banks pay interest directly to you at regular intervals, some banks compound interest and others pay at maturity. 

At Raisin UK, you’ll usually only have access to the interest you’ve earned at the end of the fixed term, but some savings accounts may pay out interest to your Raisin UK Account sooner. You can find out how interest will be paid by reading the details of the account you want to apply for. 

How do I get the best interest rate on a 3 year fixed rate bond?

3 year fixed rate bonds are an excellent choice for those who can stash their money away for three years and want to earn a solid savings rate. You want to make sure you start out with a competitive rate that you are happy with, as a lot can change with fluctuating markets over a three year term. If interest rates climb, you may find yourself locked into a lower rate. If interest rates fall, yours will be locked in at a positive rate. This is why finding the best rate to begin with can offer a sense of security.

Choosing a high street bank may seem like the most stable and safe option, but sometimes big name places don’t always offer the best deals. The most competitive rates can usually be found with smaller challenger banks. Comparing the market can highlight the best deal for you.

The best way to get a 3 year fixed rate bond that is suited to you is to compare the market. You should also check the small print on different offers to see if there are any penalties for early withdrawals and determine which pay-out system works best for you.

Before committing to any kind of fixed rate bond, it’s always useful to do some financial planning to make sure that locking away a lump sum for three years won’t leave you in a tricky situation. Our handy budget planner can help you assess and organise your finances so you know what you can afford to save.

There are several key points to consider when opening a 3 year fixed rate bond. These include:

• Whether the term is appropriate for you

• How much you can afford to lock away for this time

• How often interest is earned

• Deposit protection

It’s also worth considering that the Bank of England base rate of interest, otherwise known as the bank rate, could change. If the Bank of England base rate increases, your fixed rate bond interest rate won’t increase. The rate of interest that you earn will always stay the same. Conversely, if interest rates drop, the rate of your 3 year fixed rate bond won’t drop.

In the UK, around 95% of people won’t need to pay tax on their savings interest. That’s because the personal savings allowance (PSA) lets basic rate taxpayers earn up to £1,000 in interest tax-free. Meanwhile, higher rate taxpayers can earn up to £500 in interest without paying tax on it. 

Low-income earners or non-taxpayers can also benefit from the 0% tax ‘starting rate’ on savings of up to £5,000. This means you can earn up to £5,000 in interest before paying tax. This is reduced for every £1 you earn over your personal income tax allowance of £12,570 per year (2022/23).

However, if you have a large amount of savings and the interest you earn exceeds your PSA, you’ll need to pay tax on it. You’ll also need to pay tax on all of your savings interest if you’re an additional rate taxpayer, as you won’t be entitled to a PSA.

If you do need to pay tax on your savings interest, you’ll be taxed at your usual rate of income tax. If you’re employed or receive a pension, HMRC will adjust your tax code so you pay the tax automatically. Self-employed taxpayers will need to declare their savings interest when they fill in their self assessment tax return.

At the end of your three year term, you’ll have the option to choose one of the following:

1. Accept a renewal offer (if one is available) to open a new fixed rate bond from the same bank with your original deposit amount and choose to withdraw or deposit the interest you’ve earned

2. Move your matured funds to another savings account

3. Withdraw your original deposit plus the interest and close the account

When will I get my money at the end of my term?

If you choose a 3 year fixed rate bond, your cash will be stashed away for the full three year term. Most places don’t allow early withdrawals, and if they do, there will often be a penalty.

After the three year term, you will have the option to withdraw the money to your bank account. This process usually takes eight days from receiving confirmation your money can be withdrawn to the funds landing in your nominated account.

The Financial Services Compensation Scheme (FSCS) offers deposit protection for savings accounts from regulated UK banks. This protection covers deposits of up to £85,000 (including interest) per person, per banking group. If your bank fails, this is the maximum amount you could potentially recover.

All of the fixed rate savings accounts you’ll find in the Raisin UK marketplace include deposit protection, with savings accounts from our UK partner banks featuring FSCS protection. Savings accounts available via our European partner banks are also protected by the equivalent protection scheme, known as the European Deposit Guarantee Scheme.

How to open a Raisin UK account

You can open a Raisin UK Account to apply for savings accounts at Raisin UK in three easy steps. Log in, click to apply for a savings account, transfer your deposit. That’s it. Once your application is approved, you’ll begin earning money from your savings.