All about term or bond accounts

Term or bond accounts require you to lock your money away for a set period of time, usually six months or a year, but sometimes longer. In exchange for this, the provider should provide you with a rate of interest that is much higher than the rates offered by most other types of savings accounts.

How they work

We’re referring to them here as ‘term or bond accounts’ but in fact two terms are used fairly interchangeably: ‘savings bonds’ and ‘term accounts’. With a savings bond or a term account, the money you deposit accrues interest at a fixed rate and for a set amount of time. The government-backed National Savings & Investments (NS&I) is one of the best-known issuer of bonds, but in fact many building societies issue them.

Who should get a term or bond account

Term or bond accounts are best-suited to people who want a guaranteed income but are not prepared to take on much risk. You must also be willing to lock up your savings for a long time.

One thing to be aware of is interest rates: although term or bond accounts tend to pay out higher rates of interest than an instant access account would, their interest rates are also fixed. So even if interest rates rise during the term, you will still be on your fixed rate for the duration.

The small print

Many savings bonds or term accounts require you to invest a sum at the start of the set period, and then prohibit you from adding to this. In addition to not being able to add to the capital, you also cannot normally withdraw from your account.

In fact, in most circumstances if you need access to the capital, you will be penalised with loss of interest, or even required to close your account. For this reason, term or bond accounts are only suitable to people who are very confident that they won’t need access to the money for long period of time.

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