5 year fixed rate bonds

If you’re wondering whether to open a 5 year fixed rate bond, the answer really depends on your personal circumstances and your saving goals, especially if you have a 5 year savings plan.

If you have a lump sum that you can lock away for five years, a 5 year fixed rate bond (also known as a 5 year fixed term deposit) might be right for you, especially if you’re looking for a savings account with a fixed interest rate that’s typically higher than you might earn from an ISA or easy access account.

While five years can seem like a long time to lock a lump sum of money away, it does come with the added bonus of not having to worry about fluctuating interest rates, as they won’t affect you. Your money can be out of sight, out of mind, and earning you a solid return. A 5 year fixed savings account might be right for you if you meet the following criteria:

• You don’t need to access your savings for five years
• You want to know how much interest you’ll earn at the end of the five-year term
• You want to protect your savings from a possible reduction in interest rates over the next 60 months

A 5 year fixed rate bond is a savings account wherein the interest rate is fixed for five years, regardless of whether the Bank of England base rate increases or decreases. You open it with a lump sum deposit that you choose when applying for the account, and once your account opens, your money is locked away to earn a fixed interest rate for the next five years.

Although 5 year fixed rate bonds are also called 5 Year Fixed Term Deposits, 5 Year Fixed Rate Savings, savings bonds or fixed rate savings accounts, these are different names for the same savings account.

You open a 5 year fixed rate bond with a lump sum deposit that you lock away to earn a fixed interest rate for a full five year term, meaning that you won’t be able to access these savings until the five-year term elapses, you typically can’t withdraw your money before the end of the fixed term and you can’t make further deposits once your term begins.

As you’re locking your savings in for five years, it’s important to find an account that earns as much interest as possible and suits any other requirements you may have.

Most fixed rate savings accounts require a minimum and maximum deposit, typically somewhere between £500 and £2,000,000, although this will depend on the savings account provider. 

Because deposit protection from the FSCS is only available on deposits of up to £85,000 per person, per banking group, that’s the maximum we’ll allow you to deposit into a savings account, so you can rest assured your money is always safe at Raisin UK.

Can I withdraw money early from a 5 year fixed rate bond? 

When you commit to a fixed rate bond, you agree to lock your money away for a fixed term. Before opening a fixed rate bond, it’s important to consider that should you want to withdraw money, you may not be able to do so, or you may face penalty charges.

A 5 year fixed rate bond is a good choice if you have a lump sum to stash away and want to earn more on your money than you would on a regular savings account. 

The most important aspect is being confident that you can put the money aside and not touch it for the duration of the five year term. Maybe you’re someone who’s looking to protect and grow a lump sum of money over a longer period of time, as these longer-term bonds are good for those saving for a long term financial future.

Are other fixed terms available?

Yes, at Raisin UK you can apply for the following fixed rate savings account terms:

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

You could consider opening fixed rate bonds of different terms. As you can see from the chart below, this gives you the opportunity to maximise the higher interest rates of longer-term bonds, while taking advantage of having an account mature every year:

There are many benefits of choosing to invest in 5 year fixed rate bonds over a shorter term bond. Glance over the reasons below to see if choosing the best 5 year fixed rate bonds will work for you. Generally, 5 year fixed rate bonds provide the following benefits:

• They tend to have a more favourable interest rate

• Many accounts pay out monthly interest rather than on a yearly basis

• If rates are good, your money is protected for longer

A lump sum is one single payment made at a particular time, rather than making several smaller payments or instalments over a period of time. With fixed rate bonds, they are typically opened with a lump sum, as you aren’t able to top up or make additional payments into this savings account type once it has been opened.

Other savings accounts can be opened with a lump sum, but added to later – such as easy access savings accounts or regular savers.

How much interest you’ll earn from your 5 year fixed rate bond will depend on your initial investment and the AER (Annual Equivalent Rate) you sign up for. Many fixed rate bonds of this length will also let you decide if you want your money paid out monthly or annually. Monthly interest can be a great way to supplement your earnings, and annual interest can be reinvested or used to put towards your long-term financial goals.

How do I get the best interest rate on a 5 year fixed rate bond?

Getting the best rate on your 5 year fixed rate bond means mapping out your options and comparing the different offers on the market. Here are some tips to keep in mind when comparing fixed rate bonds.

• Search for the best rate of interest – the higher the rate, the more you’ll get back on your initial investment.

• Stay protected – make sure your funds are protected by the FSCS. The Financial Services Compensation Scheme protects money saved with UK-regulated providers up to £85,000, providing peace of mind should the unexpected happen.

• Read the small print – it’s not uncommon for 5 year fixed rate bonds to penalise you for early withdrawals, or they may not allow early access to your money at all. Make sure you read all the fine print, so you know the exact terms you’re signing up for.

The way to get the best 5 year fixed term bond that works for you is to compare the market. Once you have all your options lined up, you’ll be able to see which set of terms and conditions suits you best. 

For example, maybe getting paid your interest monthly rather than annually would suit you, or you might want a provider that doesn’t allow you to make early withdrawals in case it tempts you.

Before you sign up for a 5 year fixed rate bond, you should also do some solid financial planning to make sure you’re comfortable without access to your money for the full duration of the term. The whole idea behind a long term bond is to boost your return, and early withdrawal could jeopardise that, so you should consider putting a 5 year savings plan in place before you make any financial commitment.

Our handy interactive budget planner can help you review and organise your finances so you know exactly how much you can afford to put away.

Whether you need to pay tax on the interest you earn from a savings account depends on your tax banding and how much interest you earn. 

Thanks to the personal savings allowance (PSA), basic rate taxpayers can earn up to £1,000 per year in interest before paying tax on their savings account earnings. Higher-rate (40%) taxpayers can earn up to £500 per year in tax-free interest. However, additional rate taxpayers aren’t eligible for a PSA and will therefore need to pay tax on all of their savings interest.

If you do exceed your PSA (or don’t qualify for the allowance), you’ll be taxed at your usual rate of income tax. HMRC will adjust your tax code so you pay the tax automatically if you’re employed or receive a pension. If you’re self-employed, you’ll need to declare your savings interest when you complete your annual tax return.

Your money is safe in a 5 year fixed rate bond as long as you open a regulated savings account that includes deposit protection. UK-regulated banks should include deposit protection of up to £85,000 per person, per banking group through the Financial Services Compensation Scheme (FSCS). This deposit protection is designed to help you recover your funds if the banking group you have deposits with fails.

At Raisin UK, your money is protected every step of the journey, from your Raisin UK Account to a savings account and back again.

When you apply for 5 year fixed rate bonds through our marketplace, you can rest assured that all of the savings accounts offered by our UK partner banks include FSCS deposit protection. Savings accounts available via our European partner banks are also protected by the equivalent protection scheme, known as the European Deposit Guarantee Scheme.

At the end of your five year term, you may receive a renewal offer for a savings account with the same bank. If a renewal offer is available, you can choose whether to renew with your original deposit and any interest you’ve earned or just your deposit and withdraw your interest. 

Alternatively, you can also choose to move your funds to a new savings account or withdraw your original deposit along with any interest earned and close the account.

How long will it take to get my money at the end of my five year term?

After the full five year duration, your 5 year fixed rate bond will usually pay out within eight days of its maturation date. This process is usually straightforward – you notify your savings provider and they will deposit the money straight into your nominated bank account.

How long will it take to get my money at the end of my five year term?

After the full five year duration, your 5 year fixed rate bond will usually pay out within eight days of its maturation date. This process is usually straightforward – you notify your savings provider and they will deposit the money straight into your nominated bank account.

You can choose from a range of 5 year fixed rate savings accounts from our partner banks in our online marketplace. Currently, the best interest rate for a 5 year fixed rate bond through our marketplace is 3.15% AER.

However, if you’re looking for a savings account with more flexibility, an easy access or notice account may be more suitable.

How to open a Raisin UK account

Our marketplace features a choice of savings accounts from different banks that are free to open and manage in one place; your Raisin UK Account. It only takes a few minutes to register, and once you’ve registered with us, you can apply for savings accounts in our marketplace in a few clicks.

Once your application has been approved, all you need to do is transfer your deposit, sit back and watch your savings grow.

Are fixed rate bonds a good investment?

Generally speaking, fixed rate bonds are a good investment if you’re looking to earn a competitive fixed rate of interest. Before committing to a fixed rate bond, you should always consider whether you are willing to lock your money up for the fixed term.

How many fixed rate bonds can I have?

You don’t need to hem yourself in with just one fixed rate bond, you can have as many as you like. 6 month, 1 year, 2 year, 3 year or 5 year fixed rate bonds – there are many different terms to choose from. Having more than one account at once can be good investment practice. This staggered approach can be a good way of keeping money constantly maturing and earning interest even when another term has ended.

Can I lose money on my 5 year fixed rate bond?

No. As long as you adhere to the terms and conditions of your 5 year fixed rate bond, you can only earn money, not lose it. The only way to lose money on fixed rate bonds is if you withdraw cash early and get penalised for it. As long as you’re saving with a UK-regulated provider, your deposit will also be protected up to £85,000 per person, per banking group in the event the provider fails.

How do I pay into my 5 year fixed rate bond?

You pay into your 5 year fixed rate bond at the beginning of the term, and that’s it. Withdrawals and additions aren’t usually allowed, so this initial investment is what you’ll be working with. If you’re ready to invest, it’s a simple process. You add the money, you leave it alone for the full term, and it has the chance to grow and earn you even more money.

Can I add more money into my 5 year fixed rate bond?

Many providers won’t let you add money to your 5 year fixed rate bond along the way. The lump sum you deposit when you open your account is the amount that stays in there until your account matures, and there isn’t normally an opportunity to add to this. It’s always best to wait until you have an amount you are happy with before you make your initial investment. However, you could also open up another fixed rate bond further down the line and just choose one with a shorter term than 5 years.

Are there any alternatives to 5 year fixed rate bonds?

If the idea of putting money away for a five year period without being able to access it doesn’t sound right for you, there are other savings options that might be a better fit. You could opt for a fixed rate bond with a lesser term. You could choose a 3 year term, a 2 year term or a 1 year term, meaning that you would be able to withdraw your investment earlier. If you want a savings account that allows more flexibility in terms of withdrawing and adding money throughout the term, you could also opt for a notice account or an easy access savings account.

Are 5 year fixed rate bonds covered by FSCS?

Yes, as long as you open an account with a UK-regulated provider that offers deposit protection. Protecting your money is one of the most important aspects of a 5 year savings plan. Your deposit is be protected by the FSCS for up to £85,000 (not including interest). This amount is per banking group and per person.

How to choose the best fixed rate bonds

How you choose the best fixed rate bond for you entirely depends on your savings goals and how long you can afford to lock away your money. There are many different accounts available, and it’s a good idea to conduct some research before you commit. Important factors to consider include the following:

• How long are you happy to lock away your money for?
• Is the interest rate you’ll earn enough to meet your savings goal?
• Are there any additional payments on top of the interest, such as a bonus?