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Fix your savings for a fabulous return

Fix your savings for a fabulous return

Category: Savings

Updated: 10/03/2017
First Published: 12/12/2012

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

If you are prepared to tie your money up for a set period of time, fixed rate bonds can help you to achieve healthy returns on your hard-earned savings.

Sometimes misconceived as complicated investment products, fixed rate bonds basically allow you to deposit your savings, often as a lump sum, for a fixed period. Investment amounts and terms vary widely with fixed rate bonds, so it is always best to check out the market thoroughly before committing to a deal.

Savings providers will typically reward customers with higher rates of interest in return for locking their money away for a longer term, with five-year bonds paying some of the best rates in the savings market.

Do fixed rate bonds beat inflation?

Basic rate taxpayers must find an account paying 3.37% to beat the effects of inflation (CPI).

Currently, just one five-year bond, the Premier Deposit Account from the Bank of London and The Middle East, beats this rate at 3.50%. You must have a minimum deposit of £25,000 to invest in this account.

What happens when a bond matures?

Savings providers will often contact customers just prior to a bond maturing to discuss savings options.

It is always a good idea to keep a reminder as to when your bond is due to mature. That way you can allow plenty of time to review your savings options and ensure your money is re-invested in the best deal for you.

How competitive are long-term rates?

Over recent weeks the savings market has experienced a series of rate cuts, with the fixed rate sector being hit particularly hard.

Despite rates across all terms being reduced, long-term fixed rates continue to stand tall when it comes to achieving a higher rate of return, especially when compared against their variable rate counterparts.

Here is a selection of some of the best five-year bonds available at the moment:

The High Yield bond from Vanquis Bank pays a highly competitive rate of 3.00% for investments of £1,000 and over.

This bond also pays 3.12% on a monthly interest basis. Early access to funds is not permitted so you must be willing to lock your funds away for the duration of the five-year term.

The best five-year rate for savers with investments of £1 and over is the 5 Year Fixed Rate from BM Savings.

This postal-operated account pays 3.00% on its anniversary and 2.96% on a monthly basis. Unlike many fixed-rate bonds, this deal allows further additions and early access to funds, although you will be penalised for accessing your money during the five-year term.

Neck and neck with the BM Savings 5 Year Fixed Rate is the 5 Year Fixed Rate Bond 221 from Principality Building Society. This bond pays 3.00% on its anniversary and 2.96% if you prefer your interest to be paid monthly.

The minimum investment is £500 and further additions can be made whilst the issue is open. Early access to money is also allowed, although this is upon account closure only and you will incur a 360 day loss of interest penalty.

What next?

Check out the best long-term bonds - Compare 4 & 5 year fixed rate bonds

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 any time.