How do fixed rate bonds work?

Fixed rate bonds offer the opportunity to earn a guaranteed level of interest in return for a fixed term commitment, usually between one and five years. Interest is either paid regularly or at the end of the term.

As a general rule, the longer the term of the bond the greater the interest rate offered, and vice versa.

Many fixed rate bonds will not allow you to access your money during the term, or, even if they allow access, they may charge you heavy fees for doing so. If you think that you’ll need access to your money before the term is over, you should consider a fixed rate bond with a shorter fixed term, or other types of savings account.

Having an emergency fund in an easy-access savings account can reduce the chance of you needing to access money held in a bond before the term is over.

Fixed rate bonds are a savings product and as long as the fixed rate bond provider is regulated by the Financial Conduct Authority (FCA) in the UK, your capital is protected under the terms of the Financial Services Compensation Scheme.

Who are fixed rate bonds intended for?

Fixed rate bonds may be suitable for your if:

  • You have a lump sum you want to earn a return on without taking any investment risk
  • You can afford to give up access to your capital
  • You want to be able to plan ahead accurately by knowing how much interest you'll earn.

Last updated: 31 May 2015