Fixed rate bonds – the inbetweeners

Category: Savings
Date: 11/4/2011

One year fixed rate bonds are always a popular choice with savers. That's largely because they strike a good balance between rate and near term access.

At the moment they're also popular with savers who are mindful of rates going up over the longer term. A one year bond isn't an eternity to not have access to your money, but it is short enough to allow you to take advantage of rates when they do rise without forfeiting interest (in contrast to trying to come out of a 5 year bond 2 or 3 years down the line).

But fixed rate bonds come in a variety of different terms – they're not restricted to just 1 year, 2 years, 3 years, etc. There are also bonds available with terms of between 1 or 2 years for instance…

	AER	Information
Poppy Bond (8) to 30.04.13	3.55%	Fixed until 30.4.13 Monthly interest option also available Minimum investment £1 Maximum investment £250,000 0.05% Donation made to the British Legion Poppy Appeal No early access allowed
Fixed Rate Ebond to 31.03.13	3.50%	Fixed until 31.3.13 Monthly interest option also available Minimum investment £1,000 Maximum investment £2,000,000 No early access allowed
Fixed Rate Bond to 31.04.13	3.50%	Fixed until 31.3.13 Monthly interest option also available Minimum investment £1,000 Maximum investment £2,000,000 No early access allowed
Limited Edition Branch Fixed Rate Bond	3.30%	Fixed until 15.5.13 Monthly interest option also available Minimum investment £500 Maximum investment £50,000 No early access allowed
Savings Special Offer 18 Months	3.25%	Fixed for 18 months Monthly interest option also available Minimum investment £500 Maximum investment £1,000,000 No early access allowed
18 Month Fixed Rate Bond Issue 6	3.25%	Fixed for 18 months Monthly interest option also available Minimum investment £1,000 Maximum investment £350,000 No early access allowed

Why might you want an in-between bond?

When looking for a fixed rate bond, you might prefer to have a term other than the standard full year bonds on offer.

• You might want to use your savings in slightly longer than a year's time, such as to buy a new 13 plate car in March 2013.
• You could have money that you intend to place in an ISA in the 2013-14 tax year, but you want to be earning a decent rate of interest in the meantime.
• You might take the view that interest rates are likely to go up in 18 months' time, so would like to keep your money in a bond until then.

Are in-between bonds good value?

Generally speaking, the longer the fixed rate bond, the higher the rate. That's because the longer you're prepared to commit your money, the more your bank or building society is prepared to pay you in interest.

So, if we follow that logic, you'd expect for these in-between bonds to be priced… well, somewhere in-between the best 1 year and 2 year fixed rate bonds. However, this isn't necessarily the case…

Currently the best 1 year bond pays 3.60% - 0.05% more than the best in-between bond offered by Coventry BS. The best 2 year bond pays 4.00%, so 3.55% is still someway adrift of this too.

But in-between bonds maybe aren't so competitive because there are just so few of them around. The question of whether they are good value is larger than just a simple rate comparison though. You may not want to have to move your savings to a new account in one year's time, or you may not want to tie your money up for 2 years. If this is the case, an in-between bond can still represent good value, even if the top rates on offer fall someway short of the best 1 year and 2 year fixed rate bonds.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at anytime.