The Financial Services Compensation Scheme (FSCS) guarantees that it will step in to compensate the first £120,000 you have saved with a UK-authorised bank, building society or credit union in the event that the business goes bust.
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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 5 years, and how to compare and choose the one that suits you best.
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.
Bonds with a 5-year term will generally pay a better rate than 4-year (or shorter) terms.
However, at the moment, you can actually get a better rate (6.5% vs 4.3%) on a 1-year term. If you suspect that interest rates are likely to start to come down, then you may still prefer to "lock in" for 5 years, even if it's at a lower rate.
The downside is that, should overall interest rates rise, your money could be tied up in a bond that is no longer competitive.
There are various different features and eligibility criteria for 5 year fixed rate bonds. These include:
Provided you stick to FSCS-covered brands, the key factor is the interest rate. However, if you’re looking to generate a monthly income (in other words you want to have your interest “paid away” to a separate account that you nominate), bear in mind that not all bonds offer this facility.
You can find the bond with the best interest rate by using a price comparison website (like us!).
Other differences between bonds include how quick and easy it is to open the account, the level of customer service and the terms regarding early withdrawal (although many savers would agree that these factors pale in comparison compared to the returns on offer).
Most fixed-rate bonds offer zero risk of losing any money.
Fixed-rate bonds and ISAs both tend to offer similar interest rates but bonds have a higher limit on the amount you can save. If you opt for an account which isn’t an ISA, the interest you earn may be taxable.
You’ll usually 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. What might seem like a fantastic rate today, might be decidedly “meh” in a year’s time. If only we had a crystal ball!
It’s also generally accepted that investing in securities (say, through a stocks and shares ISA) 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.
"With interest rates being the highest they’ve been in a long time, there’s now more chance of savers exceeding their personal savings allowance (PSA). The PSA enables basic rate taxpayers to earn up to £1,000 in savings interest tax-free each year and higher rate taxpayers can earn up to £500. There’s no PSA for additional rate taxpayers.
Most savers haven’t had to worry about paying tax on their savings in recent years. However, figures from AJ Bell show that rising rates mean 1.9 million savers were hit with tax on their savings interest in 2023/24, rising to 2.07 million in the 2024/25 tax year. Moving some of your savings to a cash ISA will ensure tax won’t be charged on your savings – but remember there is an ISA limit of £20,000 a year."
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.
If you deposit money with a financial institution that has a UK banking licence, the first £120,000 will be protected under the Financial Services Compensation Scheme (FSCS) should your bank go bust.
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 £120,000 across both accounts.
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.
Our best fixed-rate bonds are the highest interest rates available. To get the latest rates, we use Defaqto data, which covers nearly the full market of savings products and is checked and updated daily. We don’t include accounts from private banks.
All the fixed-rate bonds in our list have savings protection – for most, this is the FSCS. Other schemes include that of NS&I, which is 100% backed by HM Treasury, and the Gibraltar Deposit Guarantee Scheme.
| Rates up to | 4.3% AER |
|---|---|
| Number of accounts | 88 |
| Minimum investment | £1 |
| Maximum investment | £9,000,000 |
| Opening options | Branch, website, mobile app, post, telephone |
If you can afford to lock away a lump sum for 5 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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See what you could earn monthly, annually or at bond maturity with our fixed-rate bond calculator integrated with live bond rates.
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