What is a fixed rate bond?

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At a glance:
Fixed rate bonds are a type of savings account that pay a guaranteed rate of interest.
You pay in a lump sum that’s held for a set amount of time, called a term.
The interest rate will stay the same for the term of the account. 

How do fixed rate bonds work?

Fixed rate bonds are accounts that are fixed for a period of time. Bonds with a fixed term can mean a higher rate of interest.

The interest rate will remain the same from when you open the account to the end of the agreed period. This makes fixed rate bonds an option for people who don’t need to access to their money for a while. The interest can either paid monthly or annually. 

How much can I pay into a fixed rate bond?

  • For most fixed rate bonds, there is a minimum amount of money you will need to pay in to open it.
  • The top limit you can pay into a bond is usually high, up to a few million (our top limit is £2m). 
  • The first £85,000 placed into the account will be protected by the FSCS.

How much you need to open a bond or the top amount you can pay in will depend on the provider and account you choose.

Do you pay tax on fixed rate bonds?

How much tax you need to pay will depend on:

  • How much interest you earn.
  • How much interest you earn from other accounts.
  • When you close the account. 

Whether you pay tax on your interest will depend on how much you earn and what your personal savings allowance is.

How much will depend on how much interest you have earned that tax year. The tax year runs from 6 April to 5 April. Find out how it works on the Gov website.

Can you close a fixed rate bond early?

It is highly unlikely that you will be able to close your fixed rate bond account without a penalty.

Some providers may allow you to exit but may charge you interest. You will be able to find the specific terms and conditions of the account from your provider.

In the case of exceptional circumstances, you may be allowed early closure for reasons such as: 

  • Critical illness 
  • Terminal illness 
  • Death of an account holder 
  • Court order.

Pros and cons of fixed rate bonds

Of course, as with any kind of savings account, there are pros and cons. Always read all of the terms and conditions of the account. Providers may have different rules for how fixed rate bonds work.

Here are some that may help you to decide on whether a fixed rate bond is right for you:

Benefits

  • Guaranteed returns (as long as you follow the rules of the account).  
  • Can be suited to lump sums.
  • No limit to the number of fixed rate bonds you can hold.

Considerations

  • Not suitable for savings you want to access. 
  • No access to savings for fixed term.
The content on this page is for reference. It is not financial advice.
For help with money issues, try MoneyHelper.

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