Compare the best 3-year fixed-rate bonds UK 2021

Discover how to find the best 3-year fixed-rate bonds and how this compares to other savings accounts.

Here’s what you need to consider if you’re thinking about locking your money away in a 3 year fixed rate bond, including the pros and cons and how to choose the one that suits you best.

Compare 3-year fixed-rate bonds

Table: sorted by interest rate, promoted deals first
Name Product Account type Withdrawals Min. opening balance Interest rate Apply link
Aldermore
Cash ISA
Instant access (penalty applies )
£1,000
0.9% AER fixed for 3 years
Go to site
View details
UBL UK – 3 Year Fixed Rate Cash ISA
UBL UK
Cash ISA
Withdrawals not permitted
£2,000
1.06% AER fixed for 3 years

View details
UBL UK – 3 Year Fixed Rate Cash ISA
UBL UK
Cash ISA
Withdrawals not permitted
£2,000
1.06% AER fixed for 3 years

View details
UBL UK – 3 Year Fixed Rate Cash ISA
UBL UK
Cash ISA
Withdrawals not permitted
£2,000
1.06% AER fixed for 3 years

View details
UBL UK – 3 Year Fixed Rate Cash ISA
UBL UK
Cash ISA
Withdrawals not permitted
£2,000
1.06% AER fixed for 3 years

View details
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What are 3 year fixed rate bonds?

Fixed-rate bonds are a type of savings account that allow you to lock away your money for a set time. You won’t be able to add to these funds or access them during this period. Or if you can access your money, you’ll pay a hefty fee for doing so.

In return, you’ll usually get a higher rate of interest compared to an easy access account (which allows you to withdraw funds whenever you need them), and the interest rate won’t change for the duration of the bond.

You can usually choose a fixed rate bond for a relatively short period of time, say six or nine months, or you can choose one for a longer period – usually one, two, three, four or five years. Generally, the longer the period, the higher the interest rate. But remember that you won’t be able to access your money during this time.

Locking your money away for a longer period can also be risky if interest rates are likely to rise in the foreseeable future. If this happens, your money could end up being tied up in an account that is no longer competitive and you won’t be able to switch to a better paying account without being heavily penalised.

What are the available types of fixed-rate bonds?

When comparing 3 year fixed rate bonds you’ll come across a variety of different features and eligibility criteria. This can include:

  • Minimum deposit: The minimum amount you’ll need to open a 3 year fixed rate bond tends to vary between £1,000 and £5,000. Some providers may require a higher deposit, while a few may allow you to open an account with just £500.
  • Online only: Some fixed rate bonds only give you online access or you may be able to open the account online and manage it via an app.
  • Interest payments: You may be given the option to have your interest paid monthly or on the anniversary of the bond.
  • Existing customers only: Some banks only offer certain bonds to those who already have a current or savings account with them, so always check before applying.
  • Top-up payments: Check whether your account allows you to add to your deposit within the first few weeks of opening your account, or whether you can only pay in one lump sum at the start.

How to find the best 3-year fixed-rate bonds

The only real factor you need to consider when choosing the best 3-year fixed-rate bond is the interest rate on offer.

You can find the best-paying 3-year fixed-rate bonds using any price comparison website.

There are other differences, including customer service and terms regarding the early withdrawal of your funds, but for most savers, these pale in comparison to the interest rate on offer.

How much money do you need to open a 3 year fixed rate bond?

You’ll typically need a minimum deposit of between £1,000 and £5,000 to open a 3 year fixed rate bond. However, some accounts will allow you to open them with as little as £500.

The maximum deposit is typically around £250,000, but some providers will allow you to save a few million (if you’re lucky enough to have it).

Be sure to check how long you have to pay in your deposit – this could be anywhere between 14 and 30 days after opening your account. Check whether you can top up your funds too.

Which are better: bonds or ISAs?

These two savings mechanisms are similar in most ways.

Although bonds are a contract where you agree to lend money to a third party and ISAs are a traditional savings account, they both offer similar interest rates and they both prohibit you from withdrawing your money early.

A key difference is the limits on the amount of money you can deposit. With ISAs, you’ll be given an annual limit (it’s £20,000 in the 2020/21 tax year). With fixed-rate bonds, there may be a maximum savings amount applied by the savings provider.

Another difference is you won’t pay tax on savings interest earned within an ISA. This isn’t as much of a big deal these days though. After all, with the introduction of the personal savings allowance, basic-rate taxpayers and higher-rate taxpayers can earn £1,000 and £500 of tax-free savings interest per year respectively. So, now it’s just the country’s highest earners who would have to pay significant interest on savings either way.

Is your money safe in a 5 year fixed rate bond?

If you deposit money with a financial institution that has a UK banking licence, the first £85,000 will be protected under the Financial Services Compensation Scheme (FSCS) should your bank go bust. Joint accounts will be covered up to £170,000.

Limits apply per institution which means if you have accounts with two banks under the same banking group, such as NatWest and RBS, the total cover will only be £85,000 across both accounts.

What happens at the end of the 5 years?

At the end of the 5-year period, your account will “mature” and your provider should pay you the interest you’re owed. You’ll then typically be able to have the money transferred to your current account. Or you can renew your account with the same provider – usually by choosing a different deal at a different rate of interest.

Are fixed rate bonds a good investment?

Fixed-rate bonds are a type of cash savings account so there is no risk to your capital. However, if you choose a longer term bond, which will generally have a higher rate of interest, you run the risk of interest rates going up while your money is locked away at that fixed rate. This means your money could be tied into an account that’s no longer competitive.

If you have savings in other accounts that you could access in an e

Pros and cons of fixed-rate bonds

Pros

  • Earn interest on your savings.
  • You can deposit more money compared to an ISA.

Cons

  • You may have to pay tax on interest earned.
  • To get the best rates, you’ll have to lock up your funds for a few years.

Bottom line

If you can afford to lock away a lump sum for five years, and you have funds in another account you can access in an emergency, a fixed rate bond can be a good place to put your money. Interest rates are often more competitive than other savings options and you’ll have the security that if interest rates drop, your savings rate won’t.

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