A Guide To Fixed Rate Bonds

Shahzad Masood


There are a lot of different savings products on the market and it can be tricky knowing what’s the right fit for your money. But it’s worth finding stable and reliable investment options as this can help build wealth and secure your financial future.

One option that you might want to consider is a fixed rate bond. If you want to see if this could be a suitable choice, read on. We delve into what fixed rate bonds are and how they work so you can decide if it’s right for you.

What is a fixed rate bond?

A fixed rate bond is a type of savings account that offers a set (or fixed) amount of interest for an agreed period, which is known as the ‘term’. If you decide to lock your money in this type of account, you could see a higher return on the money you put into the account as the interest rates paid on fixed-term bonds can be lucrative.

However, by agreeing this, you won’t be able to access your money until the term is up. If you do withdraw your money early, you can expect to pay a penalty charge. 

How do they work?

There are a few steps to follow when taking out a fixed rate bond:

  1. Choose your bond: Be sure to research the best rates and find out how long you won’t have access to these funds. Different providers offer different terms, plus the amount of money you’ll get back will depend on the rate you fix at.
  2. Select how much you want to deposit: Find out what the minimum amount you can pay in will be before you commit to a bond. This is because you can’t top up this amount later on so it’s important to know ahead of time. When you’re ready, put in the lump sum.
  3. Wait: you’ll now have to wait until the bond term is up. When the bond matures, you’ll then be able to withdraw your money, plus the interest you’ve accrued.  

Are they safe?

As long as your provider is covered by the Financial Services Compensation Scheme, your funds are secure for up to £85,000. This means that fixed rate bonds offer a high level of security for savers.

Before investing in a fixed rate bond, check that your chosen provider is covered by the FSCS, ensuring your funds are safeguarded in the event of a financial institution’s failure.

Is it worth locking my money now?

This type of account is affected by interest rates. Rates have been high for a while, but this is set to change in 2024. This makes it a potentially good time to take out a fixed rate bond as if you fix now, your return is guaranteed at the higher interest rate, even if this falls during the term of your bond.

What happens when it ends?

Fixed rate bonds have a specified maturity date, marking the end of the agreed-upon term. When a bond reaches maturity, you can either withdraw your funds or transfer them to a new account. This flexibility allows you to reassess and update your financial goals and explore other investment opportunities.

Read the T&Cs

As with any financial product, reading the terms and conditions is crucial. Fixed rate bonds may have specific rules, penalties for early withdrawal, and other important details outlined in the fine print. Take the time to thoroughly understand the terms and conditions before you make a decision and so you can avoid any surprises down the line.

Leave a Comment