Fixed Rate bonds are a form of
savings accounts, but unlike regular savings products, these accounts allow you to fix the interest rate paid on your balance for a specified period of time.
This can work both for and against you, as fluctuations to the Bank of England base rate are usually reflected to savings accounts, so if rates fell, you would still be earning the rate agreed upon opening the bond, however if rates were to rise, you would still be locked into your rate, therefore earning less interest than other savers on a variable rate.
Fixed rate bonds tend to offer better rates than other savings accounts, as they reward savers for limited or no access to their funds for a fixed term. Most fixed bonds do not allow withdrawals until the bond matures, with a penalty fee incurred for early access. This means that to make the most of this type of account you must ensure you are in a position to lock your savings away, and choose a realistic term that suits your financial needs.
You can open as many fixed rate bonds as you like, but the key to keeping your money safe is spreading it out so that each account holds no more than £85,000 at any time. You may choose to have your interest paid into a separate account with another provider to ensure the interest you earn is also safe. The Financial Services Compensation Scheme has been set up to cover account holders with UK banks if they were to fall into financial difficulty. It is important to know which banks hold a single membership to the scheme, and which are seen as independent. For more on this, check out our
Top Ten Savings Tips
