Best 2 year fixed rate bonds

If you're planning to save your money in a fixed rate bond, we take a look at how you can find the best 2 year fixed rate bond.

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Compare 2 year fixed rate bonds

Table: sorted by interest rate, promoted deals first
Data indicated here is updated daily
Name Product Account type Withdrawals Min. opening balance Interest rate Apply link
Aldermore – 2 Year Fixed Rate Account
Aldermore
Fixed-rate bond
Withdrawals not permitted
£1,000
0.95% AER fixed for 2 years
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Ford Money – Fixed Saver 2 Year
Ford Money
Fixed-rate bond
Withdrawals not permitted
£500
1.2% AER fixed for 2 years
Ikano Bank – Fixed 2 Year Saver
Ikano Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
1.01% AER fixed for 2 years
Masthaven Bank – 2 Year Fixed Term Bond
Masthaven Bank
Fixed-rate bond
Withdrawals not permitted
£500
1% AER fixed for 2 years
Paragon Bank – 2 Year Fixed Rate Savings Account
Paragon Bank
Fixed-rate bond
Withdrawals not permitted
£1,000
0.9% AER fixed for 2 years
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What are 2 year fixed rate bonds?

Fixed rate bonds involve depositing a set amount of money for an agreed period of time at a fixed interest rate. With 2 year fixed rate bonds, the money is locked in for a period of 2 years, although there are other fixed terms available, which usually range from 1 to 5 years.

With a 2 year fixed rate bond, normally you won’t be able to add money to the savings pot or withdraw it for the duration of that 2 years. The interest rate you get is fixed from the start, which provides certainty on your level of return (although that’s not so great if interest rates go up elsewhere in the meantime).

There is usually a chunky minimum deposit required, so a 2 year fixed rate bond could be a good option if you have a lump sum available that you know you won’t need to get your hands on again in the immediate future.

What are the available types of 2 year fixed rate bonds?

These are two main types of fixed rate bonds:

  • Normal fixed rate bonds provide a fixed interest rate for the duration of the bond (in this case, two years).
  • Tracker rate bonds involve fixing the interest rate at an agreed level above the Bank of England base rate. So for example, these might offer a rate of 1% higher than the base rate until the end of the 2 year term – which technically means there’s a chance the interest rate could fluctuate if the BoE decides to change its base rate.

How to choose the best 2 year fixed rate bond

The best 2 year fixed rate bond for you will be the one that best meets your individual needs. So here are some points to consider when choosing your account:

  • Interest rate. This is arguably one of the top factors when selecting your bond since you want your money to earn the best interest rate possible if it is tied in for two years. Also check if the interest is paid annually (so you can benefit from compound interest in the second year) or at the very end of the two years.
  • Account opening and management. Can you easily open the account online or do you need to go into a branch? And can you then manage or view your savings online or from a mobile app if that’s what you would prefer?
  • Eligibility. Some providers reserve the best bond products for their existing customers (who already have a current or savings account with them, for example). If you have an eye on a particular bond, check that it’s available to new customers.
  • Minimum deposit. You might need a minimum deposit of up to £1,000 for the accounts with the best interest rates. So make sure you have that lump sum available and can afford not to have to withdraw it again for the two years.

How much money do you need to open a 2 year fixed rate bond?

Typically, there is a minimum deposit of £500 or £1,000 required to open a 2 year fixed rate bond, although there are some accounts that can be opened with as little as £50.

The maximum amount you can put into one of these bonds is usually capped at around the £250,000 mark, but some providers will potentially let you put in millions of pounds (if you’re lucky enough to have that much to spare!).

When thinking about how much money to place in your bond, remember there is tax payable on the earnings from savings interest, although everyone gets a yearly allowance before the tax liability kicks in. Basic-rate taxpayers can earn up to £1,000 in interest each year tax-free, and for higher-rate taxpayers, it’s £500.

Is your money safe in a 2 year fixed rate bond?

Funds deposited at a financial institution with a UK banking licence are protected by the Financial Services Compensation Scheme (FSCS) up to the value of £85,000. This is per person, so any joint accounts will be covered for up to £170,000.

But you must be mindful that these limits apply to each bank (or banking group), so if you have a current account and several savings accounts with one provider containing funds totalling more than £85,000, any amount over this threshold won’t be covered.

Money deposited with financial providers that don’t have a UK banking licence also won’t be covered specifically by the FSCS. Although if the provider is regulated by the FCA and is allowed to take customer deposits in this country, it must have other safeguards in place, such as ring-fencing its customers’ money in accounts held at UK banks.

What happens at the end of the two years?

It’s time to cash out! As the bond will have reached the end of its fixed term (or “matured”), your provider will pay you the interest you’ve earned during this time, and you can then draw out your original lump sum plus the interest. Typically, you can choose to have this paid back into your current account or into another fixed term bond if you’d like to continue saving.

Pros and cons of 2 year fixed rate bonds

Pros

  • Good option for investing a lump sum in the medium term
  • Have certainty on the interest rate over the two years
  • Generally higher interest rates on offer than with easy access savings accounts

Cons

  • Not suitable if you think you may need to access your savings before the two years are up
  • Risk that interest rates in the wider market may go up after your interest rate is locked in
  • High minimum deposit usually required, often about £1,000

We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you.

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