Compare the best 5-year fixed-rate bonds UK 2021

Discover all you need to know about 5-year fixed-rate bonds, including how to find the best one for you.

Thinking of getting a 5 year fixed rate bond? Here’s what you need to consider, including the pros and cons of locking your money away for five years, and how to compare and choose the one that suits you best.

Compare 5-year fixed-rate bonds

Table: sorted by interest rate, promoted deals first
Name Product Account type Withdrawals Min. opening balance Interest rate Apply link
QIB (UK) – Raisin UK - 5 Year Fixed Term Deposit
QIB (UK)
Fixed
Withdrawals not permitted
£1,000
2% AER fixed for 5 years
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Aldermore
Fixed
Withdrawals not permitted
£1,000
1.5% AER fixed for 5 years
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OakNorth Bank – Raisin UK - 5 Year Fixed Term Deposit
OakNorth
Fixed
Withdrawals not permitted
£1,000
1.34% AER fixed for 5 years
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View details
ICICI Bank UK – Raisin UK - 5 Year Fixed Term Deposit
ICICI Bank UK
Fixed
Withdrawals not permitted
£1,000
0.4% AER fixed for 5 years
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View details
Gatehouse Bank – 5 Year Fixed Term Green Saver
Gatehouse Bank
Fixed
Withdrawals not permitted
£1,000
2.05% AER fixed for 5 years

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What are 5 year fixed rate bonds?

Fixed rate bonds are a type of savings account that require you to lock away your funds for a set period. You won’t usually be able to add to those funds or make any withdrawals during that time. Those accounts that do allow withdrawals often charge hefty penalty fees.

You can typically choose from a short term fixed rate bond, such as six or nine months. Or you can choose from longer term bonds which typically run for one, two, three, four or five years.

Fixed rate bonds can be a good investment if you have a lump sum to hand and you don’t need to access that money in the near future. Interest rates are fixed for the duration of the bond and are often higher than those on easy access savings accounts. Generally the longer you lock away your money, the better the interest rate you’ll get.

The downside is that should overall interest rates rise, your money could be tied up in a bond that is no longer competitive.

What are the available types of 5 year fixed rate bonds?

There are various different features and eligibility criteria for 5 year fixed rate bonds. These include:

  • New vs existing customers: Some fixed rate bonds are only available to those who already have a current account or savings account with that particular savings provider. Make sure you check before you apply.
  • Online access only: Some bonds can only be opened and managed online. Others might allow you to open them online and then manage them via an app. It’s best to check if you’d prefer to have a branch to go into.
  • Minimum deposit: The amount you’ll need to pay in when you first open your bond will vary depending on the provider. Typically this will be between £1,000 and £5,000 but some might ask for £25,000 or more.
  • Initial top-up payments: Many bonds only allow you to pay in one lump sum upon opening the account. But others may allow you to make additional top ups in the first couple of weeks.

How to find the best 5-year fixed-rate bonds

The only factor really worth considering is the interest rate.

You’ll find a bond with the best interest rate using any price comparison website.

Other differences between bonds include customer service and the terms regarding early withdrawal, although most savers would agree that these pale in comparison compared to the returns on offer.

Are fixed-rate bonds a good investment?

Most fixed-rate bonds offer zero risk of losing any money.

Fixed-rate bonds and ISAs both tend to offer similar interest rates. ISAs offer tax-free savings interest, but under the current tax rules, only the UK’s highest earners are likely to earn enough interest to trigger a tax bill.

You’ll find the best interest rates on fixed-rate bonds with longer terms.

However, on these accounts, you run the risk of interest rates going up while your money is locked away at that fixed rate.

It’s also generally accepted that investing in securities provides better long-term returns, albeit with more volatility and a risk of losing money from your investment.

Still, all things considered, if you’re looking for an investment that offers zero risk, fixed-rate bonds are a good choice.

How much money do you need to open a 5 year fixed rate bond?

You’ll typically need between £1,000 and £5,000 to open a 5 year fixed rate bond, but some accounts may ask for a larger sum of £25,000 or more. The maximum amount you can usually invest is around £250,000 but some providers will allow you to save a few million.

Check how long you have to pay in your deposit – this is typically between 14 and 30 days after opening the account – and whether you can pay in any extra after the initial lump sum.

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.

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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