The top fixed rate savings bonds

by lovemoney staff today  |  9 comments
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If you're looking for a place to lock up your savings for a while, take a look at these top fixed rate accounts.

When it comes to savings accounts, many of us prefer the option of an easy access account so we don’t have to worry should we need to get our hands on our cash in an emergency.

However, you’ll generally get a better rate of interest if you’re prepared to lock away your money for a year or more in a fixed-rate bond. But these days, the difference isn’t that great.

Unfortunately interest rates on bond savings accounts have plunged of late, to the point that financial information firm Moneyfacts has declared that the interest rates on offer from fixed-rate bonds are now at an all-time low. That said, the top bonds still offer some return on your money.

All of the bonds listed below are with providers who participate in the Financial Services Compensation Scheme, which guarantees the first £85,000 of your savings should the provider go bust, unless we've indicated otherwise.

One-year bonds

If you’re interested in investing in a fixed-rate bond but don’t want to tie up your money for too long, a one-year or 18-month fixed-rate bond might be right up your street.

So here are the current top-paying one-year and 18-month fixed-rate bonds:

* Anticipated profit rate

**You must hold another Metro Bank product

Two-year bonds

You can get slightly better rates by locking your cash up for longer in a two-year bond.

*Anticipated profit rate

As you can see, the extra six months to a year that your cash is locked away will pocket you more interest. But it isn’t a huge increase, so you may need to weigh up whether you think this extra kick provides sufficient reward for tying your money up for longer.

Three-year bonds

Now let’s now take a look at how the three-year bonds are shaping up.

*Account not protected by the FSCS

The top paying bond in this category is the AgriBank Three-Year Fixed Term Deposit which pays 3.35%, surpassing the best two-year rates by a long way.

But this great rate comes with a catch; the bond isn’t covered by the UK’s Financial Services Compensation Scheme. Read more about the risks in Agribank: New bank will pay 3.6% on your savings.

Four- and five-year bonds

These longer term bonds are more risky. As the term of the account is for at least four years, there’s a bigger chance that market interest rates could move against you. In other words a five-year account paying 3.00% might look attractive now, but you might be a bit fed up if rates went up and the top instant access accounts were paying 5% in 2016.

When comparing these with shorter bonds, the difference is fairly small. You may be better off opening a one- or two-year account in the hope the market will pick up and when the account matures there will be better rates on offer.

With that warning out of the way, here are the top-paying bonds for four and five years:

*Account not protected by the FSCS

**Anticipated profit rate

Decisions, decisions

Ultimately, deciding how long to tie up your funds is up to you. As we mentioned at the top, you need to weigh up whether the rate of interest you’ll be earning is worth locking away your funds for several years.

You should also bear in mind that in the majority of cases, you won’t be able to make additional deposits once you’ve opened your fixed rate bond – so again, this may put you off tying up your funds for too long. As always, make sure you read the terms and conditions carefully.

Finally, don’t forget about tax-free savings. You can also lock away your money in a fixed rate cash ISA (or opt for an easy access cash ISA if you prefer) and you won’t have to pay tax on any interest you earn.

This article is regularly updated to reflect the latest rates

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