Best 5-year fixed-rate bonds
Discover all you need to know about 5 year fixed rate bonds and compare accounts with interest rates up to 5.1% AER.
Compare 5-year fixed-rate bonds
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.
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.
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 (5.8% vs 5.1%) 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.
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.
- Lack of access: Some fixed rate bonds will simply not permit withdrawals during the account’s term, while others will permit them but you’ll have to pay a hefty penalty (usually a loss of interest).
How to find the best 5-year fixed-rate bonds
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).
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 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 is taxable.
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. 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.
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.
Which are the best 5-year fixed-rate bonds at the moment?
Our best fixed-rate bonds are the highest interest rates available. To get the latest rates, we use Moneyfacts 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.
- Leek Building Society – Existing Customer Only Fixed Rate, Fixed Term Bond - 5.1%
- Union Bank of India (UK) Ltd – Fixed Rate Deposit - 5%
- Union Bank of India (UK) Ltd – Union Premier Bond - 5%
- Bank of London and The Middle East – Premier Deposit Account (Anticipated Profit Rate) - 5%
- JN Bank – Fixed Term Savings Account - 4.85%
An overview of our 5-year fixed-rate bond comparison
|Rates up to||5.1% AER|
|Number of accounts||73|
|Opening options||Branch, website, mobile app, post, telephone|
Pros and cons of 5-year fixed-rate bonds
- You’ll typically be rewarded with some of the best savings rates going.
- You can deposit more money compared to an ISA.
- Your funds can be guaranteed under the FSCS.
- If savings rates generally fall over the next few years, your rate won’t change.
- You must lock up your funds for the duration of the term (or pay a penalty if you withdraw them sooner).
- You may have to pay tax on interest earned.
- If savings rates generally rise over the next few years, you could find yourself trapped in an uncompetitive product.
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.
Frequently asked questions
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