How Fixed Term Bonds differ from your average savings account

Fixed Term accounts differ from typical savings accounts. To begin with, they are more of an investment. Most people associate an investment as a form of gambling, as things do not always go as planned so there is the potential to lose an investment. However, Fixed Term Bonds are extremely safe investments, as long as you stick to banks registered with the Financial Services Authority (FSA) and make sure you do not invest more than £50,000 in any one account to ensure you are fully covered if your bank were to collapse. For a list of which banks are covered by the Financial Services Compensation Scheme see our List of Banks by Institution.

Unlike a regular account that has lots of activity with constant deposits and withdrawals, Fixed Term Bond accounts generally allow you to make a single payment then leave the account to let your money grow with interest. Then when the term ends you are reinstated with your money with the added interest. Bond accounts have a fixed term – which is the period of time you agree to lock your money away for, and a fixed rate – which is the rate agreed at which your money will grow. Some fixed term accounts will not allow you to withdraw your money until the term ends, but others either charge you for the privileged, or lower the interest rates for the month that the withdrawal was made. These accounts are sometimes called Fixed Rate Bonds, but they both mean the same thing.

Another difference with fixed term accounts is that the rate at which is agreed when opening the account fill not fluctuate based on Bank rate. So for instance, if you open an account that pays 8% for a 1 year period, over the course of the following 6 months the Bank of England cuts its rates down to 4%, you will still be getting 8% until the term ends.

This can also work against you, as rates could rise, making your rates seem less attractive compared to accounts with rates passed on.

One thing to be aware of is the rate at which you get against the period of time you wish to lock your money away for. Some accounts offer the higher rates for shorter times, others visa-versa. This can also be dependant on the state of the economy, and predictions on which way the rate will go. You would think that by locking your money away for a lengthy amount of time you would be getting the highest rates, but this is not always the case so compare the rates against standard savings accounts.

Term and bond accounts are ideal for those that would rather not take any risks. They offer a guaranteed return and you can expect to get more attractive interest rates than you would using other savings accounts.

Written by Sam Gooch