Have you ever asked yourself: what exactly is a savings bond, and how does it differ from a savings account?
The common confusion around these two terms lies in the fact that they are so similar.
In fact, a savings bond is also a type of savings account! So why call them by different names? In truth, more and more banks and building societies are calling savings bonds "savings accounts" in an attempt to make things simpler.
However, whatever the particular provider has chosen to name them, there are a few key differences between a savings bond and a normal savings account:
It's important to understand that as savings bonds are still savings, they are protected by the Financial Services Compensation Scheme in the same way as a normal savings account – that's up to £85,000 per person (together with any other savings accounts you hold) for each bank or building society.
You're also taxed in the same way as a normal savings account.
The big advantage of a savings bond is that the rates of interest you can expect to earn are generally higher, as you need to be able to commit your savings for a set period.
So, to summarise: a savings bond is basically a more restrictive type of savings account which, because of this restrictiveness, generally pays more interest in comparison.
Be careful not to confuse a savings bond with an investment bond. With a savings bond, your money is safe from decreasing in value due to a poorly performing investment; this may not be the case with an investment bond.
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Unsure of who is protected by the FSCS Depositor Protection Scheme? - Check out our detailed chart with all participating providers
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.
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