Competitive interest: Fixed rate bonds are savings accounts, typically with competitive interest rates
Set term: Fixed rate bonds lock your money in at a fixed rate of interest for a set term
Deposit protection: The Financial Services Compensation Scheme (FSCS) protects deposits of up to £85,000 per person, per regulated UK banking group
What are fixed rate bonds?
A fixed rate bond is a type of savings account that pays the same interest rate over a specified term and is ideal if you want to earn a guaranteed interest rate for a set term. You may also see it referred to as a fixed term deposit account, lump sum savings account or a building society bond.
A fixed rate bond locks your money in at a fixed rate of interest for a specified amount of time, typically one year, two years, three years, five years or six months. The term you choose will typically depend on your savings plan and goals. Whichever term you choose, a fixed term deposit is a secure way to take advantage of competitive interest rates on a high-yield savings account without putting your savings at risk.
The rate of interest you’ll earn usually differs depending on the length of your term, with longer terms commonly featuring higher rates of interest. The interest accumulated can be paid monthly or annually.
December fixed rate bonds update: what’s new?
Updated: 19.12.2024
In a widely-expected move, on 19 December, the Bank of England’s Monetary Policy Committee (MPC) voted by a majority of 6–3 to hold the base rate at 4.75%. The next decision will take place on 6 February 2025, with markets pricing in less than a 50% chance of a 25-bps rate cut.
CPI inflation increased to 2.6% in November, above the government’s 2% target.
Saving for retirement? If you can afford to lock your savings away for a set period, fixed rate bonds typically still provide the best return on your investment. Our top fixed rate bond pays 4.80% AER.
Visit the Raisin UK marketplace today and compare competitive fixed rate bonds from our partner banks.
How do fixed rate bonds work?
To open a fixed rate bond, you deposit an amount of money that you specify in your application. Once you’ve transferred the amount you want to open your account with and your application is approved, all you need to do is sit back and watch your savings pot grow. You can’t make deposits into a fixed rate bond after your initial deposit, nor is it usually possible to close a fixed rate bond before it matures.
Fixed rate bonds have minimum and maximum deposit amounts, usually between £500 and £1,000 for a minimum deposit and as much as £2,000,000 for a maximum deposit. At Raisin UK we want to keep your savings safe, so the maximum amount you can deposit is £85,000 per person, per banking group, so that the FSCS or applicable deposit protection scheme protects your money. Please remember that you are only covered up to £85,000, per banking group, including any direct funds you may already hold with a bank that is also featured on the Raisin UK marketplace. A similar scheme covers deposits held in European banks up to €100,000 (or the equivalent amount in a European country’s local currency). The interest earned from your fixed rate bond will be paid out upon maturity, or annually, depending on the product.
Find out more about deposit protection.
Are fixed rate bonds right for me?
Fixed rate savings are ideal for those who have a lump sum that they can afford to lock away for a set period of time without needing access to it, as well as people who want to grow their savings without the usual risks that other investment options such as stocks and shares may offer.
A fixed rate bond from our marketplace might also be right for you for the following reasons:
They’re free to open
Your savings are protected
You’ll earn a fixed, competitive interest rate
Higher interest rates are available on accounts with longer terms
You’ll lock away your savings for a fixed term
You can easily manage your savings online
Do you pay tax on fixed rate bonds?
You may have to pay income tax on interest earned from fixed rate bonds in the UK, depending on what kind of taxpayer you are, and how much interest you will earn on your savings within the tax year. You may benefit from the personal savings allowance, which grants some taxpayers the ability to earn up to £1,000 in interest, tax-free.
Another benefit some receive is the starting rate for savings, in which you can accrue a maximum of £5,000 of interest and not have to pay tax on it, if your total income amounts to less than £17,570. If you earn more from other income, for example your pension or salary, your starting rate will decrease.
Rules and regulations regarding tax paid on savings accounts can be subject to change, so make sure to keep updated on the latest guidelines by checking trusted sources such as the government website.
Is there any 10 year fixed rate bond?
The most common term lengths for fixed rate bonds are between one and five years. However, longer fixed term bonds, including 10 years, have been used by savings providers in the past including banks, investment platforms and the government.
A fixed term bond of this length may be desirable if the interest rate on the product is high, and you suspect that it will drop in the coming years. You will also need to be certain that you won’t need access to the money for a decade.
When do you pay tax on fixed rate bonds?
You pay tax on the interest earned from your fixed rate bond when your total income, including the interest, exceeds your personal allowance. As of the 2024/25 tax year, this is £12,570. If your total income is below your personal allowance, you won’t have to pay income tax on it.
What types of fixed rate bonds are there?
Interest rates were low following the financial fallout of the pandemic, which saw savers opt for many different types and terms of fixed rate bonds and long term savings accounts, due to uncertainty about whether or not the interest rate is going to rise or fall, and on what timescale.
The following are the most common forms of fixed rate investments:
6 Month Fixed Rate Bonds
6 month fixed rate bonds are the shortest term available, which often means they have lower interest rates than longer-term options. They can be a good choice if you want to grow your money as quickly as possible without taking any risks.
1 Year Fixed Rate Bonds
1 year fixed rate bonds are short-term fixed rate savings that can offer competitive rates of interest. They allow you to grow your money and benefit from a bonus, providing you adhere to the terms of the bond.
2 Year Fixed Rate Bonds
2 year fixed rate bonds are one of the most common forms of fixed rate savings accounts, offering savers competitive rates of interest and the chance to grow your money on a relatively short yet manageable timescale.
3 Year Fixed Rate Bonds
3 year fixed rate bonds typically offer savers slightly higher rates of interest than 1 and 2 year fixed term deposits, due to the longer timeframe that your money is locked away for.
5 Year Fixed Rate Bonds
5 year fixed rate bonds offer a bigger return on your investment due to the compounding effect of interest that occurs each year, as well as a bonus when the deposit account matures.
Are fixed rate bonds a good investment?
Fixed rate bonds might be a good investment for you if you’re looking to deposit your money into a savings account, as they typically offer better interest rates than easy access or notice accounts. With fixed rate bonds, you need to lock in your money until the end of your fixed term, so you should only open one if you have a lump sum that you won’t need to access in the medium to long term.
Can you lose money on fixed rate bonds?
No, you can’t lose money on fixed rate bonds, as long as you stay within the deposit protection scheme limits. After the fixed term, you’ll receive your original deposit and any interest you’ve earned.
Plus, the Financial Services Compensation Scheme (FSCS) protects deposits up to £85,000 per person, per UK regulated banking group under British banking regulations, meaning that your money is safe.
Pros and cons of fixed rate bonds
Pros of fixed rate bonds
- Guaranteed savings growth
- Peace of mind thanks to FSCS deposit protection, as long as you bank with a UK registered institution and your savings are less than £85,000 per person, per banking group
- Very minimal risk
- The ability to work out exactly how much you’ll earn
- Even if interest rates drop, the interest rate on your fixed term bond will stay the same
Cons of fixed rate bonds
- The interest rate is fixed, meaning that if interest rates rise during your term, you’ll still be on the agreed rate for the duration of your term
- You won’t have access to your money during the bond term
- You’ll need to pay in a lump sum to open your account
What is the best fixed rate bond?
Generally, the best fixed term deposits, are the ones that offer the most competitive rate of interest for the lowest deposit amount over the period of time that works for you. You can compare different fixed rate bonds in the table at the top of this page.
How do I find the best fixed rate bond for me?
As we mentioned above, the best way to find the savings pot that is right for you is to compare the different fixed rate bonds available on the market. However, before you do this, it’s important that you assess your budget plan and financial circumstances to ensure that you can definitely afford to lock a lump sum of money away over a period of time.
How can I get the best interest rate on a fixed rate bond?
There are some things you can look out for when you want to get the best interest rate on your fixed rate bond, including the following:
1. The longer the term, the higher the interest rate
While this isn’t always the case, you’ll often find that fixed rate bonds with longer terms earn higher rates of interest. Before committing, you must ensure that you can afford to lock your money away for a longer time period.
2. Fixed rate bonds with compound interest are the ones to watch
Compound interest can help grow your savings at a faster rate when you choose a high interest fixed savings account. This is because any interest you earn gets added to your overall balance, which is then the basis for earning future interest.
3. A larger deposit could mean a better rate of interest
Most financial institutions offer more competitive interest rates on deposit accounts. You can see how this works for yourself by using an online comparison table.
How to compare fixed rate bonds
Once you’ve determined the amount you can afford to deposit into your savings pot, as well as a timescale that works for you, you can compare different fixed rate savings bonds. It’s easy enough to do this online by using free comparison tables.
What should I consider when I compare fixed rate bonds?
The most important things to consider when comparing fixed rate bonds are:
The length of the bond term
The required deposit amount
The rate of interest
Whether the bond offers compounds interest
Typically, you’ll earn more interest the longer you can lock your money away in a fixed rate bond for. However, this isn’t always the case, which is why you should compare fixed rate bonds (and any other kind of saving plan) carefully. Ultimately, the length of time you choose to lock your money away will depend on your own timescale and whether you will need to access your money during this time.
Fixed term bond investment limits
Fixed term bonds typically have a minimum and maximum opening deposit amount, which differs depending on the account and the provider. It is worth keeping in mind that only £85,000 per person, per banking group is protected by the FSCS, so it could be a good idea to spread your money between different banking groups and savings pots if you’re investing more than this.
Do you pay tax on a fixed rate savings?
If you’re a basic rate taxpayer, you can earn up to £1,000 in interest on savings each year without paying any tax, thanks to the personal savings allowance. However, additional rate taxpayers aren’t eligible for an allowance, meaning that any interest they earn is taxable.
Any interest you earn over the personal savings allowance is usually collected through the PAYE system, or completed by you via a self-assessment tax return.
What happens when a fixed rate bond matures?
When the term of your fixed rate bond ends, the bond will have ‘matured’. You generally have three options when this happens, which are:
Invest your money into another fixed rate bond
Withdraw your funds
Add to the funds and re-invest the entire amount
Read our guide to renewing a fixed rate bond here.
How do I cash in my fixed rate bond when it has matured?
Your savings provider will usually remind you just before your bond matures, so you have time to determine what you’d like to do with your funds. One of your options is to withdraw the amount to a nominated bank account, which is how you can cash them in. This is usually done by completing a form with your savings provider, who will then deposit your money into your nominated bank account or send you a cheque so you can deposit the money where you like.
How long will it take until I get my money?
If you’ve chosen to cash in your fixed rate bond when it has matured, the entire process from you notifying your account provider to receiving your money usually takes around eight days. The fastest method of getting your money is usually to ask your savings provider to make the deposit straight into your nominated bank account.
In most cases, you won’t be able to withdraw any money from a fixed rate bond. Some savings accounts may allow you to withdraw money early, but you’ll usually pay a substantial fee for doing so, and this could wipe out any interest you’ve earned. You may also be penalised with a reduction to your original interest rate. The fee will differ depending on your institution, so it’s always best to check before signing up.
Can I close a fixed rate bond early?
No, in most cases, you won’t be able to close your fixed rate bond early, or withdraw any money from a fixed rate bond. Some savings accounts may allow you to withdraw some money early, but you’ll usually pay a substantial fee for doing so, and this could wipe out any interest you’ve earned. You may also be penalised with a reduction to your original interest rate. The fee will differ depending on your institution, so it’s always best to check before signing up.
Applying for a fixed rate bond
If you want to quickly and easily apply for fixed rate bonds with attractive rates from a range of partner banks, register for a Raisin UK Account today. Registration is completely free and only takes a few minutes. Once your application is approved, simply make your deposit and watch your savings grow.
You can find out how to apply by reading our guide to opening a fixed rate bond.