You’ll usually get a better interest rate on your savings if you take out a fixed rate bond, but how long should you lock your money away for?
Despite the fact interest rates are rising, many of us are still having to play ‘spot the interest’ on easy access savings accounts, so you’ll probably have to lock your money away if you want a better return. Banks and building societies regularly launch 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?
How long should you lock your money away for?
Five year bonds typically pay the highest rates of interest but, if interest rates continue to rise, as is expected, then in a couple of years’ time you may find you’re locked into an uncompetitive deal.
You will also need to think about whether you’re likely to need access to the money. Not all bonds will let you get at your money early, or you might be charged a hefty penalty if you are able to take your money out. If you don’t think you can tie your money up for so long, you might want to consider a savings bond with a shorter term, say one, two or three years.
Where to get the best fixed savings rates
One year fixed rate savings
If you only want to leave your money tied up for a year you can get over 5.80% interest, but you’ll have to choose carefully. Here are some current best buys:
Here are some current best buys:
- Metro Bank’s Fixed Term Savings Account – One year pays 5.80% AER on a minimum amount of £500 for one year. Interest is paid monthly or on maturity and you can’t get access to your money during the account term.
- Union Bank of India’s Fixed Rate Deposit – One Year pays 5.70% AER on a minimum amount of £1,000 for one year. Interest is paid on maturity and you can’t get access to your money during the account term.
- Smart Save’s One Year Fixed Rate Saver pays 5.66% AER on a minimum £10,000 for one year. Interest is paid on maturity and you can’t access your money during the account term.
Three year fixed rate savings
Here are some of the three year fixed rate savings bond current best buys:
- JN Bank’s Fixed Term Three-Year pays 5.50% AER on a minimum £1,000 for three years. Interest is paid annually and you can’t access your money during the account term.
- Newbury Building Society’s Fixed Rate Bond (29 July 2026) pays 5.25% AER on a minimum £5,000 for three years. Interest is calculated daily and added to the account each July, and you can’t access your money during the account term.
- RCI Bank’s 3 Year Fixed Term Savings Account pays 5.20% AER on a minimum of £1,000 for three years. Interest is paid annually or monthly and you can’t access your money during the account term.
Five year fixed rate savings
- JN Bank’s Fixed Term Five-Year pays 5.50% AER on a minimum amount of £1,000. Interest is paid annually and you can’t get access to your savings during the bond term.
- Union Bank of India offers their Fixed Rate Deposit – Five Year which pays 5.30% AER on a minimum amount of £1,000. Interest is paid annually and you can’t get access to your savings during the bond term.
- Smart Save’s Five Year Fixed Rate Saver pays 4.82% AER on a minimum £10,000 for one year. Interest is paid on maturity and you can’t access your money during the account term.
(NB rates correct as at 4.12.23)
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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