Fixed rate savings accounts offer savers a guaranteed interest rate over a set period of time. This provides certainty and stability, protecting your money from decreases in interest rates.
In this comprehensive guide, we'll cover everything you need to know about fixed rate accounts, including:
What is a fixed rate savings account?
How do fixed rate accounts work?
The pros and cons of fixed rate saving
How to choose the best fixed rate account
Where to find the top fixed rate deals
What happens when your term ends
Can you withdraw money during the term?
Are your savings protected?
Answers to frequently asked questions
Finding the best fixed rate bond
If you are happy to tie your money up for a fixed term, a fixed-rate bond might be a good option for your savings.
Fixed rate bond terms typically vary from 3 months to 5 years. Most fixed rate bond deals are for 1,2, 3 and 5-year terms. Generally speaking the longer your money is locked away the higher the rate of interest you will receive on your money.
So if you don’t need instant access or easy access to your money, or a notice account then the table above provides a selection of current UK fixed rate bonds.
How do Fixed Rate Bonds work?
How much can I deposit? - There is usually a minimum commitment for depositing money into a fixed rate bond - usually around £500 or more, but this will depend on the fixed rate bond provider. This makes fixed bonds unsuitable for those who wish to top up a savings account in small amounts or through regular savings.
How do I get my money back? - With a fixed term these types of savings bonds have a maturity date at which time you will be contacted by your savings provider and provided with options on how you wish your money to be returned to you - you may be given options of putting the money into a new bond from the same provider but usually, on maturity, you will need to decide on what to do with the money.
If you leave the funds where they are the bond provider will normally move the funds into a low or zero-interest paying account, so it is in your interests to be proactive.
Are there access restrictions to my money? With a fixed rate bond you are usually restricted on access to your money during the specified term. Some fixed rate bond terms will not allow you access at all - while others may provide access on certain terms e.g. one withdrawal a year. It is important to check the small print before signing up.
What is the tax treatment? - Interest paid on your savings is treated as income and you may have to pay tax on it depending on your personal circumstances. If you don’t pay the tax you can receive interest gross if you complete HMRC tax form R85. Some accounts will pay interest gross and it is up to you to declare any tax owed to the Inland Revenue. Some bonds allow you to have the interest paid on maturity while others pay monthly or annually.
What protection do I have? - Fixed rate bonds are cash deposit based and so you will get back your original deposit plus interest unless the bond provider (normally a bank or building society) finds itself in financial difficulty. In the unlikely event that this happens, the Financial Services Compensation Scheme (FSCS) would pay compensation of up to £85,000 per account holder per authorised institution.
What to look for when choosing a Fixed Rate Bond
The duration that you choose to save over depends on your personal financial time frames and other budget and savings considerations. If you need rapid access to your cash, a fixed rate bond may not be the best savings option – it might be better to look at instant access or easy access accounts.
Minimum bond deposits can vary from £500 to over £10,000. Make sure you are happy to lock away cash for a set period of time.
Withdrawals are either not permitted or restrictions will apply. Read the bond provider small print so that you know what you are signing up to. Some bond providers will permit one withdrawal during the bond term without penalty.
The payment of savings interest on a bond can also vary, so some offer monthly interest, others quarterly or annually, and some bond providers only pay at the end of the agreed fixed term. Choose a bond that fits in with your personal situation.
Tax is payable on interest accrued unless you are a non-taxpayer, in which case you can receive interest gross if you complete HMRC tax form R85. Alternatively, it is often possible to take a Cash ISA fixed rate bond from which interest can be taken tax-free.
Please note that the information above is based on current law and practice, which is subject to change at any time.
10 Tips for Fixed Rate Bonds
Before selecting a fixed rate bond use our tips below;
Review different saving account options – Look at instant access to fixed rate bonds to cash ISA products - All have advantages and disadvantages.
The market changes constantly – shopping around to find the right savings deal for you. Interest rates are at an all-time low, so now more than ever you need to be proactive in getting the best rate for your money and then reviewing on a regular basis.
Find a fixed rate bond that works for you - The choice of bond is dependent on the amount of money you intend to deposit, the rate and the length of the term. Whether you want to operate on an online account basis, postal, branch or telephone basis. Read the savings provider terms and conditions carefully.
Read the small print – What are the access terms if there are any, what notice is required, are there any penalties for withdrawing funds, can you make additional deposits during the term, and what happens to the money on maturity.
Some fixed rate bond deals require you to have the interest paid into a current account – This may mean you have to open a current account with that provider – good to check the small print.
Check the small print on how savings interest is paid - Whether the interest is paid monthly, quarterly or annually, it will need to be declared if you submit a tax return. If interest is paid on maturity this may be useful for tax planning purposes.
Sounds obvious but if you opt for an online account you will need to have internet access - Some bond accounts are offered on a postal, telephone or branch basis - check the detail.
Check that your money is covered by the Financial Services Compensation Scheme – They will guarantee £85,000 of savings against institutional failure. Most UK banks should have this cover, but Irish or European banks that do not have a UK arm may not be covered by the FSCS.
Maturity process - Bond providers will write to you when your fixed rate bond is due to mature. Typically, on application, the provider may ask for details of your current account for proceeds to be paid into. Alternatively, monies may be paid into a holding account operated by the provider and this will probably pay no interest. It is therefore important to diarise the maturity of your bond and have in mind what you plan to do with the money.
Tax position - If you are not a UK taxpayer many savings bond providers will pay interest gross on submission of the relevant HMRC tax form.
What is a Fixed Rate Savings Account?
A fixed rate savings account, or a fixed rate bond, is a special type of savings account offered by banks and building societies in the UK that pays a fixed rate of interest over a set period of time.
The interest rate remains the same throughout the term of the account, typically 1, 2, 3 or 5 years. It is fixed at the time you open the account and cannot be changed during the term, even if market interest rates rise or fall.
At the end of the fixed term, your account typically converts back to a variable rate account, where the interest rate can fluctuate.
Fixed rate accounts provide savers with consistent, guaranteed returns, as you know exactly how much interest you'll earn. This helps you plan your finances.
How Do Fixed Rate Savings Accounts Work?
When you open a fixed rate savings account, you agree to lock your money away for a set period of time - usually 1, 2, 3 or 5 years.
In exchange for tying up your money, the bank or building society guarantees you a fixed interest rate for the full term.
This agreed interest rate is applied to your account balance over the fixed term. Interest is normally compounded annually and credited to your account at the end of each year.
For example, if you deposit £10,000 into a 2-year fixed rate bond at 2% interest, you'll earn £200 interest each year. After two years, your original £10,000 deposit will have grown to £10,400.
As the interest rate is fixed, you'll continue earning 2% per year regardless of whether market interest rates rise or fall during the 2-year term.
At the end of the fixed term, your savings are typically moved into an easy access savings account, paying a variable interest rate. You can renew for another fixed term if you wish.
The Pros and Cons of Fixed Rate Saving
Fixed rate savings accounts offer some advantages over normal variable rate savings accounts, but also have some drawbacks:
Pros:
Guaranteed returns - By locking in a fixed interest rate, your returns are guaranteed for the term. This protects you from any decreases in interest rates.
Beat inflation - If you can lock in a rate that is higher than inflation, your savings will grow in real terms over the fixed period.
Plan ahead - Knowing your exact interest rate makes it easy to forecast returns over the fixed term. Useful for budgeting.
No surprises - Your interest income will not fluctuate during the term, giving certainty.
No fees - Most fixed rate accounts do not charge any account fees (unless you withdraw early).
Cons:
Lock up money - Your money is tied up for the full term, reducing access and flexibility.
Early withdrawal penalties - Accessing your money early may incur significant penalties.
Miss out on rate rises - You cannot benefit from any increases in interest rates during the fixed term.
Lower rates - Fixed rates are often lower than the best variable rates.
So fixed rate accounts suit savers happy to lock money away in exchange for the security of guaranteed returns. Make sure you are comfortable committing your money for the full term.
How to Choose the Best Fixed Rate Savings Account
When choosing a fixed rate savings account, you'll want to find the option with the highest interest rate and best features for your needs.
Follow these tips to select the best account:
Compare interest rates - Interest rates vary widely between providers, so shopping around is essential. Compare rates across banks and building societies.
Consider account terms - Choose a term length of 1, 2, 3 or 5 years that aligns with how long you are willing to lock money away.
Check deposit limits - Most accounts have minimum and maximum deposits. Higher fixed rates often require bigger deposits.
Understand withdrawal rules - Some accounts allow penalty-free withdrawals while others don't. Check you're comfortable with the withdrawal rules before opening your account.
Look for annual compounding - Choose accounts that compound interest to maximise your interest earnings.
Review additional features - Things like bonus interest rates, linked easy access accounts and FSCS protection up to £85,000 per institution.
Check ratings - Read customer reviews and account ratings on comparison sites before choosing your account.
Where to Find the Best Fixed Rate Savings Deals
Finding the top paying fixed rate accounts takes a bit of research. Here are some options:
Comparison websites - Our comparison service above helps you compare deals from across the market.
Provider websites - Check the savings section of major bank and building society websites directly. They don't always list their best deals on comparison sites.
Savings champions tables - Newspapers like the Times, Telegraph and Guardian regularly publish "best buy" savings tables showing top rates.
Best buy guides - Some financial publications and websites publish monthly guides to the top savings rates.
Newsletters and forums - Sign up for newsletters and visit forum sites like ours to stay on top of new fixed rate deals as they become available.
Check rates frequently, as the top fixed rate accounts change all the time as providers compete for business.
What Happens When Your Fixed Rate Term Ends?
As fixed rate savings accounts only pay the advertised interest rate for the specified term, it's important to understand what happens when your term comes to an end:
Your money will usually be automatically transferred into an easy access savings account with the same provider.
This linked account will pay a variable interest rate, which is usually lower than the fixed rate you were earning.
You are then free to withdraw your money from the easy access account without any notice or penalties.
Or you can reinvest your savings into a new fixed rate account with the same or different provider.
If interest rates have gone down, you may earn a lower rate on a new fixed term. If they have gone up, you can lock in a better fixed rate.
Make sure you pay attention to when your fixed term is ending, so you have time to find a suitable new account or provider. Try not to let your savings just default into the provider's standard easy access account paying minimal interest if it's not the best deal available.
Can You Withdraw Money During a Fixed Term?
Most fixed rate accounts place restrictions on accessing your money before maturity:
Partial withdrawals - Most accounts do not allow any withdrawals at all until maturity. Some allow withdrawals of interest earned.
Early closure - Accessing all your money before the end of the term will incur hefty early withdrawal penalties, if allowed.
Penalty interest rates - Any money you withdraw early may earn reduced interest, like 0.1% instead of a 2% fixed rate.
Fixed term resets - Any withdrawal may reset your account's fixed term back to day one, locking up money for longer.
Limited penalty-free withdrawals - A few accounts allow a small number of penalty-free withdrawals each year, like 1 or 2 per annum.
Before opening an account, always check the specific withdrawal rules and potential penalties. Pick an account that aligns with when you'll need access to your money.
Are Your Savings Protected?
One concern people have when choosing savings accounts is whether their money will be safe. Here's how fixed rate savings protect your money:
FSCS protection - Savings in UK regulated banks and building societies are protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 if the provider goes bust. This covers most fixed rate accounts.
Deposit protection - Some providers like NS&I and Yorkshire Building Society protect all deposits 100% through additional schemes on top of the standard FSCS protection.
Major regulated providers - Fixed rate accounts are offered by major established banks and building societies, who are authorised and regulated by the FCA and PRA for safety.
UK based - Your money is held securely in the UK and not transferred abroad. Deposits should not be affected by foreign banking crises.
So you can have confidence that your money will be safe in a fixed rate account with a major provider. Always check they are FSCS protected before opening an account.
Frequently Asked Questions
What happens if interest rates rise during the fixed term?
Even if market interest rates rise, you will continue earning the same fixed interest rate throughout your account's term. You cannot switch to take advantage of higher rates until maturity.
Where will my money go when the fixed term ends?
Your savings will be automatically transferred into an easy access savings account with the same provider, allowing penalty-free access. You can then reinvest in a new fixed rate deal.
Can I add more money to my account once opened?
Most fixed rate accounts do not allow any additional deposits after opening the account. You need to deposit the full amount when you open the account.
Are fixed rates just for large deposits?
While the top rates often require £5,000+ deposits, many providers offer fixed rate accounts with lower minimum deposits like £500. Less competitive rates are available for smaller deposits.
Who offers the best fixed rate accounts?
The banks and building societies paying the top fixed rates change frequently. Check out our table above to see the latest deals.
How often do providers increase fixed rates?
To attract new customers, providers typically increase fixed rate savings deals every 1-2 months in step with competitors. So new higher fixed rates are frequently available.
Fixed Rate Bond Alternatives
Fixed Income Plan
5.34% per year fixed, monthly payments, for full 6 year term…
Fixed monthly income: 0.445% (equivalent to 5.34% annually)
Income paid monthly for full 6 year term of plan, regardless of the FTSE 100 performance
Capital at risk product - 65% barrier
Available for stocks and shares ISAs, ISA Transfers & direct investments. also available to businesses, charities, trusts & SIPP and SSAS pension schemes
Investment term - 6 years
Arrangement fee applies
Minimum investment - £5,000
“Are you getting 5.34% fixed from your capital? Getting such a high level of fixed interest is not easy, especially in today’s economic and investment climate, and so this monthly fixed income plan might be worth considering.
The plan pays 5.34% fixed interest per year (0.445% paid each month), regardless of the performance of the FTSE 100 Index. The plan has a term of 6 years.
At the end of the plan, your original capital is returned in full unless the FTSE 100 Index has fallen by more than 35% from the opening Index level. If the Index has fallen by more than 35%, then your initial capital will be reduced by 1% for each 1% fall.
So if you think it’s unlikely the FTSE will fall more than 35% in four years’ time, and you require a competitive level of fixed monthly interest, this plan could offer a timely opportunity.”
Oliver Roylance-Smith, head of savings and investment
Important Information: This is a structured investment plan which is not capital protected and is not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the underlying investment. There is also a risk that the company backing the plan known as the Counterparty may be unable to repay your initial investment and any returns stated.
