Fixed-rate bonds explained

A fixed-rate bond is an investment whereby you are lending money to your provider for a fixed term usually with a higher return of interest. In comparison, most regular savings accounts do not have a fixed term and tend to pay a much lower rate of interest.

A fixed-rate bond offers a fixed rate of interest on a lump-sum for a set period of time. Fixed rate bonds often offer a higher rate of interest due to the extended period of time that your money is locked away.

Fixed-rate bonds typically have set terms between one and five years. Usually interest is compounded annually and paid once the bond reaches the end of term and matures. Most fixed-rate bonds do not permit any withdrawals. If they do permit closure then many have a penalty for early closure, so it is important that you only invest money that you will not require access to during the fixed term.

You should also consider future risks of rising rates when making a decision on the length of time you lock away your funds. Tying up your funds for an extended period of time means that if interest rates begin to rise you could run the risk of losing out on competitive rates. Alternatively if rates go down you have the assurance of a fixed rate.

Shortly before your bond matures your provider will write to inform you of the options available to you and request your instructions.

These options include:

  • Reinvesting your bond for another fixed term
  • Cashing in your bond

Our Sensible Savings Fixed-Term Bonds are fixed-rate and offer competitive rates for either 1, 2 or 3 years.


Investing in a fixed-rate bond

The amount that you can invest into a savings bond can vary from each provider. You are usually required to deposit a lump-sum upon opening a bond. Opening balance requirements vary.

It is important to note that once you make your deposit you cannot add to the existing balance. However, if you do wish to tie up any further lump-sums you do have the choice to open more than one bond. With our Sensible Savings Fixed Term Bonds you are able to deposit a minimum of £5,000 and a maximum of £500,000, but are able to open multiple bonds if you have larger sums to invest.

There is also likely to be a set period to fund your new bond, this can range from 7-30 days so you must ensure your bond is funded to prevent its closure.

Our Sensible Savings Fixed-Term Bonds must be funded in 10 working days.


How interest is paid

The interest on a fixed-rate bond will not change during the duration of the term. You will begin to earn interest on your savings the day you fund your account up until the day it matures. Interest from your fixed-rate bond is compounded annually and paid with your capital once the bond matures.

Interest on our Sensible Savings Fixed-Term Bonds is calculated daily and you will begin earning interest when you have completed your application and we receive your funds.


Are Savings Bonds Right for you?

If you are saving for a special occasion or would simply like a rewarding rate on your savings and you will not require any withdrawals before the end of the fixed term that is applicable to you, then a fixed rate bond could be right for you.