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For savers who don’t need to access their savings for a longer period of time, 4 and 5 year fixed rate bonds offer the very best savings rates available.
Most 4 and 5 year fixed rate bonds will let you access your money before the end of the term (although by no means do all allow this). Where early access is permitted there will normally be a hefty interest penalty. These penalties vary between providers and can either be:
When taking out a longer term fixed rate bond, it’s important to think about what will happen to interest rates over the next few years.
If interest rates go down, opting for a 4 or 5 year fixed rate bond will end up being a financially shrewd move, as other savers will have to suffer lower rates.
Conversely, if interest rates go up during the term of your bond, better rates could be on offer. It could transpire that your bond pays an uncompetitive rate of interest in comparison to the best savings rates available.
While thinking about what rates will do is important, so is the certainty you get with a bond. One of the big advantages of a fixed rate bond is that you are getting a definite rate of interest, over a definite term. If you think rates won’t rise over the term of your bond, or you simply want a stable rate of interest for the next 4 to 5 years, then a longer term bond can be a great option.
A good hedge, if you are worried about interest rates rising over the longer term, is to opt for a medium term 2 or 3 year fixed rate bond. You aren’t committed for as long, but you do get the benefit of a better rate of interest than will be available on a variable rate easy access or notice account.
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