Saving is the best future financial security that guarantees our well-being and that of our families. If you’re looking for a safe way to invest a lump sum, go for a fixed-rate bond.
A fixed rate bonds account is a type of savings account where I put my money for a while; in return, the bank pays me interest at a fixed rate on my invested cash. A fixed-rate bond usually pays the stake at an agreed interest rate at a fixed duration. The amount that I can deposit depends on the minimum deposit requirements outlined by the service provider.
The main selling points of fixed-rate bonds UK include;
- They offer higher rates of interest.
- It is secure, meaning that even in a potential market downturn, I will still receive the agreed benefit.
- I get to know the exact amount of money I will get from the investment, which is a guarantee and not a risky business.
Despite that, it has reasonable offers it also has its disadvantages.
I know you’re asking yourself, ‘can you lose money with bonds?’ Could that be a disadvantage? No. FSCH protects your money. You cannot lose money, either access it during the fixed term, especially with short term savings. If the provider allows access, it’s usually at significant interest penalties.
Are fixed-rate bonds a good investment? What if I changed my mind?
What happens is that if you change your mind after making a deposit, most providers give their investors a 14-day cooling-off period for any changes that may occur. Therefore any change I request should be within this period.
If I thought otherwise about the plan when the cooling period is over, then early termination will come with an early access fee (penalty). On closure, if my bond hasn’t earned enough interest to cover for the sentence, the cost is then deducted from the bond itself (initial invested cash).
Generally, what I will receive = savings +interest (if any) – early access charge.
Things to remember when considering a fixed rate bonds
- It guarantees our interest rate.
- Fixed-rate bonds have higher interest figures than natural access bonds.
- You will receive even higher interest figures for longer terms.
- These bonds have FSCS (financial Service Compensation Scheme) protection. Always check if the provider features the FSCS logo.
- It does not allow regular deposit; it is a one-time lump sum investment.
- You cannot withdrawal the savings until upon maturity of the agreed duration.
Factors determining the interest amount on your fixed-rate bonds
The interest that I can earn from these bond terms depends on two main factors;
● the deposit amount
The deposit amount requirements depend on the provider’s terms. The competitive fixed bonds may require a larger deposit though this is not always the case.
● the term length
Rule 1. The longer the duration, the higher the interest accrued. However, only lock the money you can afford to stay without for that period. These terms can get divided into two; short- term and long term fixed bonds. You will always find fixed bonds in terms of weeks, months, or years.
What should I consider when looking for best-fixed rate bonds?
Ask yourself the following questions;
• For how long can you leave the money you have invested untouched?
• What’s the interest rate of the providers? What is the best-fixed rate bond for one year?
• Compare, which offers high-interest amounts.
• How much can be saved? Others have higher deposit requirements while others low.
• How regularly do you want to be paid the interest? You can choose between yearly or monthly.
Which are the best bonds to buy in 2020?
Tesco fixed-rate bonds (annual equivalent rate AER)
- Accepts a minimum and a maximum deposit of £2,000 and £5 million, respectively
- It pays out interest on a monthly and annual basis.
- FSCS protection
- 1 year fixed rate bonds -0.90% AER- 0.90% monthly
- 15 months- 0.95% AER- 0.95% monthly
- 2 years- 1.10% AER -1.09% monthly
- 3 years-1.20% AER – 1.19% monthly
- 5 years-1.30% AER -1.29% monthly
Santander fixed rate bonds.
- Allows mobile and online banking
- Choice of terms from 3 months to 3 years
- Has the option for monthly or annual interest payment
- FSCS protection
- It gives up to 3% cashback on household bills.
- Minimum deposit 500 euros and maximum deposit
- 1 year -0.50% AER- 0.50% monthly
- 2 years- 0.55% AER -0.55% monthly
The rate for 1, 2, 3 worlds or Santander select clients
- 1year-0.70% AER – 0.70% monthly
- 2years-0.80% AER -0.80% monthly
- 3-years rate applies to Santander select customers
- 3years-1.00% AER -1.00% monthly
Nationwide fixed rate bonds
- The minimum deposit is £1 and a maximum of £5 million
- It has fixed-term choices from 6 months to 3 years
- It allows having joint deposits
- Seven years old is eligible to open a nationwide fixed rate bond
- 1 year -0.50% AER- 0.50% monthly
- 2 years- 0.60% AER- 0.60% monthly
- 3 years-0.75% AER – 0.75% monthly
Halifax fixed rate bonds
- Minimum deposit £500
- You can choose monthly or yearly interest payment
- Has online accessibility
- FSCH protection
- 2 year fixed rate bonds – 0.55% AER- 0.55% monthly
Coventry fixed rate bonds
- Minimum opening balance from £1 to £250,000
- You can choose a monthly or annual payment
- Guaranteed return- FSCH
- Per year (expires on 30.04.2022) – 1.10% AER- 1.09% monthly
I am hopeful that the above article gives you a better idea of how bonds agreements work. If you have got some money to save, use it to make more money. If you find this article helpful, please note and share it on your social platforms. You can also send us suggestions on topics you may want us to cover related to investment.
Disclaimer: This article is not investment advice or an investment recommendation and should not be considered as such. The information above is not an invitation to trade and it does not guarantee or predict future performance. The investor is solely responsible for the risk of their decisions. The analysis and commentary presented do not include any consideration of your personal investment objectives, financial circumstances or needs.
Risk Warning: Our products are traded on margin and carry a high level of risk and it is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved.