Business Savings Bonds with Fixed Rates of Interest
A fixed rate bond is an agreement with a bank, building society or investment organisation that pays you a fixed rate of interest over a fixed period of time.
There are still many bonds around the market place to deposit your money although interest rates are currently low, but you could still get four or five times the Bank of England base rate.
What is a Fixed Bond?
A fixed bond is just what the name implies. It's just an agreement that you will be paid a fixed rate of interest on your savings deposit for a fixed period of time. You'll need to keep the deposit with the institution for the fixed period. This rate is completely fixed and guaranteed so long as you keep the money in the bond for the predetermined amount of time specified in the offer and contract.
Sometimes you can take your money out without penalty, but it's best to read the small print. Normally, if you decide you no longer want the deposit because either interest rates have increased or you need the money, you may lose all the interest accumulated and/ or have a withdrawal penalty.
You may also not be able to add additional funds during the term although some schemes do allow this.
Should You Take Out a Fixed Bond?
With interest rates at historical low levels and some bonds offering 4% interest, this may appear to be a wise move. However, interest rates can only move one way now, and that's upwards, so you need to ask yourself if you want to tie the money up for at least a year. The current best savings accounts are paying around 2.5% with no penalties for withdrawing the money. With the best bonds at 4%, it may be wise not to tie your money up unless you have a substantial amount to invest.
When is Interest Paid?
Most instant access accounts pay interest monthly or quarterly with the interest accumulated on a daily basis so if you withdraw any monies you still get the interest earned to date.
Fixed bonds may not pay interest like this so you need to look at the terms. Some bonds pay on maturity, annually or monthly. Some are linked to the stock market so if the FTSE index increases by 40% you may also receive an increase of the same value.
Some bonds accumulate the interest (by adding it back into your bond account) while others pay you the interest separately into your bank account without adding it back into the bond principal.
Depending on the risk you want with your money and if you may need access to it depends on what you may want to invest in.
Fixed Rate Bond Deals
There are many deals in the marketplace at the moment as it is thought interest rates will rise in the medium term so the rates on offer are far higher than the Bank of England base rate.
- Santander offers a two-year fixed deal paying 4.01% interest on an annual basis.
- Santander also offers a one-year fixed rate paying 3.5% interest on an annual basis.
- The Post Office offer a one-year fixed bond paying 3.4%.
- The Halifax offer various deals at 2.0% for one to three years but with savings accounts offering higher interest rates this may not be the best course of action.
Get Independent Financial Advice
This article on fixed bonds is to provide an insight into what a fixed term bond is and what you may get out of it and does not represent financial advice. It is recommended you do your own research and if you are unsure speak to an independent financial advisor.