Whether putting your money into a fixed rate bond makes sense usually depends on how much money you have to deposit. For smaller sums, a savings account will generally offer the best rates of interest.
However, if your savings take you above the limit on which your savings account will pay interest or your maximum permitted balance, a fixed rate bond can be a very good option. It will allow you to earn a return on your money at a guaranteed rate for the life of the bond. Fixed rate bonds usually have a much higher maximum deposit than the threshold at which most current accounts stop paying interest.
One key advantage of fixed rate bonds is that they can be set up in parallel with your existing current account, either with the same institution or a different one. This means you can start getting more out of your savings without needing to rearrange your day-to-day banking.
It is worth bearing in mind that if you have savings in your current account not earning interest, then that money is likely to be effectively declining in value in real terms thanks to inflation. Placing your savings into a fixed rate bond is therefore a great way to maintain your money’s value over time.
How long should you fix your savings for?
Most fixed rate bonds are offered for 1 year, 2 years, 3 years or 5 years. Some companies also offer 30 month and 4 year bonds, although these are less common. In general, the longer the term of the bond, the higher interest rate you will receive.
Many bonds will allow you to remove funds early if necessary, but you will usually incur some kind of penalty for doing so. This most often involves forfeiting some of the interest you would otherwise have earned. This means if you are going for a longer term bond, you need to be very confident you will not want to access those savings before the bond reaches maturity.
Placing your savings into a fixed rate bond can be a big commitment, as it means you won’t have easy access to your money if you later need it. With so many different products on the market, it can also be difficult to know which is the best choice for you.
Before making a decision, be sure you know exactly what you want to get out of your bond and be prepared to shop around to find the best deals. Our fixed rate bond comparison tool above is a great way to keep on top of the current most competitive deals.
