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Best 3 Year Fixed Rate Bonds

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Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme up to a maximum level of protection of £85,000 per person per institution.

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A guide to 3 year fixed rate bonds

At a glance

  • Three year fixed rate bonds are a good compromise between short and long-term fixed rate bonds.
  • As most bonds don’t allow early access to funds, make sure you won’t need your money for the next three years.
  • If early access is allowed, a considerable interest penalty is likely.

Fixed rate bond considerations

The two most important things to consider when taking out a three year fixed rate bond are interest rates and how likely it is that you’ll need access to those funds invested within the three-year period.

Firstly, the interest rate you sign up to will be fixed for the duration of the bond. Therefore, if rates skyrocket during those three years, you might find yourself earning an interest rate that suddenly seems quite poor. On the other hand, if interest rates fall, you’ll have made a great investment earning a return that is much better than the majority of easy access accounts. Three year fixed rate bonds are considered a good trade-off between the security of a fixed rate product without locking your money away for the long-term.

Access to your cash

When taking out a fixed rate bond, you are usually not supposed to withdraw your cash for a specified period of time – in this instance, it will be for three years. Most three-year fixed rate bonds do not allow you access to your money once it’s been deposited until the bond matures. Where early withdrawals are allowed, a considerable interest penalty will almost certainly have to be paid.

If not being able to access your money over a three year period could be a challenge, you may want to consider a two year fixed rate bond or a one year fixed rate bond as an alternative.

Who offers the best three-year fixed rate bonds?

Many of the best rates available on three-year fixed rate bonds are offered by what is often referred to as ‘challenger banks’. These are normally, smaller, relatively unknown banks who are new to the market. However, they are just as safe as any of the high street, big-name banks and building societies. All the providers appearing on Moneyfacts.co.uk are part of the Financial Services Compensation Scheme (or an EU equivalent). Therefore, you can be safe in the knowledge that the first £85,000 you have saved is protected if the bank or building society were to go bust.

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