You’ll often get a better interest rate on your savings if you pay into a fixed rate bond rather than an easy access account, but how long should you lock your money away for?
Despite the fact interest rates remain relatively high, many of us are still having to play ‘spot the interest’ on easy access savings accounts, so you’ll probably have to tie up your cash if you want a better return. Banks and building societies regularly launch one, two three, four and five-year fixed rate savings accounts. The question is how long should you lock your savings away for and who’s paying the best rates of interest at the moment?
What are fixed rate savings bonds?
Savings accounts that pay out a fixed rate of interest for several years are often called ‘fixed rate bonds’. In fact, they’re not bonds in the true sense of the word – they’re just fixed rate accounts. A true bond is an IOU for a loan you’ve given either to a company or the government. You can find out more about how those types of bonds work in our guide What are bonds and how do they work?
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How long should you lock your money away for?
Interest rates are widely expected to fall over coming months. This means you can currently earn higher returns if you choose a shorter-term one-year fixed rate savings account rather than a five-year account (see all the top rates below). However, rates on shorter term accounts have fallen in recent weeks. According to Moneyfactscompare.co.uk returns from one and two-year bonds have slipped the most, while bonds with longer-terms have broadly resisted cuts.
A spokesman for Moneyfactscompare.co.uk said; “Short-term fixed bonds continue to take a downward trajectory; savers could now be earning up to £56 less in real returns compared to this time last year. To maximise their savings, consumers would be wise to carefully consider stashing away their cash for a longer term to receive a guaranteed return and outpace fixed bond rates tumbling further, but they should ensure that they are not in danger of breaching their Personal Savings Allowance.”
Find out more about the Personal Savings Allowance in our article What is the Personal Savings Allowance?
Whilst seeking out the best returns is crucial, you’ll also need to think about when you’ll need access to your money. Not all bonds will let you get at your money early, or you might be charged a hefty penalty if you need to take your money out before the end of the fixed rate term. If you don’t think you can tie your money up for several years, you might want to consider a savings bond with a shorter term, say one, two or three years. If you’re saving for a long-term goal however, such as home improvements or a new car, you may prefer to tie your money up for five years so that you can’t dip into your savings and use them for something else.
Where to get the best fixed savings rates
There are several websites where you can search for the best savings rates. These include Savingschampion.co.uk and Raisin UK’s marketplace for savings, where you can choose from a wide selection of high interest-paying accounts from 40 banks and building societies including challenger banks and those not found on the high street. Learn more in our guide Where can I find the best savings rates?
Save smarter with Raisin UK
Our simple, free-to-use online savings platform lets you browse, open, and manage accounts with over 40 banks and building societies. Apply to open savings accounts in just a few clicks, enjoy competitive interest rates from FSCS-protected banks, and manage everything under one roof.
For a limited time only, you can receive a £100 bonus when you register and fund your first savings account with a minimum of £10,000 using the code “SAVINGS100”.
Terms apply, see website for full offer conditions.
One year fixed rate savings
If you only want to leave your money tied up for a year you can currently get up to 4.60% interest, but rates are changing all the time, so you may want to get your skates on if you spot a deal you like. Here are some current best buys:
- Vanquis’ 1 Year Fixed Rate Bond pays 4.60% on a minimum of £1,000 for a year.
- Secure Trust Bank’s 1 Year Fixed Rate Bond pays 4.59% on a minimum deposit of £1,000 for a year.
- Cynergy Bank’s 1 Year Fixed Rate Bond pays 4.58% on a minimum of £1,000 for a year.
Three year fixed rate savings
Here are some of the three year fixed rate savings bond current best buys:
- Close Brothers Savings’ 3 Year Fixed Rate Bond pays 4.63% AER on a minimum of £10,000 for three years.
- Vanquis’ 3 Year Fixed Rate Bond pays 4.53% AER on a minimum of £1,000 for three years.
- Hodge’s 3 Year Fixed Rate Bond pays 4.51% AER on a minimum of £1,000 for three years.
Five year fixed rate savings
- JN Bank’s 5 Year Fixed Term Savings pays 4.55% AER on a minimum amount of £100.
- Close Brothers Savings’ 5 Year Fixed Rate Bond pays 4.55% AER on a minimum amount of £10,000.
- Birmingham Bank’s Personal 5 Year Bond account pays 4.55% AER on a minimum amount of £5,000.
(NB rates correct as at 17.03.25)
Are my savings safe?
All banks that operate in the UK have to be regulated by the Financial Conduct Authority and must be a member of the Financial Services Compensation Scheme unless their headquarters are outside the UK.
- If their headquarters are outside the UK they can be covered by their home country’s compensation scheme. For example, Hoist Finance AB has its headquarters in Sweden and so funds deposited are protected by the Swedish Depositor Compensation Scheme, up to a maximum of the GBP equivalent of SEK 1,050,000, or around £89,000. However the maximum deposit size for its fixed rate savings bonds is limited to £75,000, so under the compensation limit’s maximum.
- If that scheme is less generous than the UK’s savings compensation scheme, they must top up the compensation they offer. This does have the disadvantage of meaning you may have to go to two different compensation schemes to get your compensation if a bank were to fail.
If the bank’s home country’s compensation scheme is more generous than the UK Financial Services Compensation Scheme it doesn’t need to top up. That means you’d have to apply for all your compensation from a scheme based outside the UK. Learn more about what protection you have in our guide Are my savings safe?
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