The Financial Services Compensation Scheme (FSCS) guarantees that it will step in to compensate the first £85,000 (£170,000 for a joint account) 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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Please note: This calculator provides estimations based on assumptions such as that you do not make withdrawals. You should always refer to the account provider for exact figures as they may vary from our results. Interest may be taxable.
If you have a lump sum and want a risk-free home for it for a set amount of time, then a fixed-rate bond will probably appeal. This can be especially true if you don’t want to lock the money away indefinitely (and so it doesn’t make sense to invest it in stocks and shares).
Fixed-rate bonds are about cold, hard maths. As well as the rate, there are a couple of other variables which together determine the gross figure you could generate.
What factors influence the amount of interest you make from a fixed-rate bond?
The amount you invest. You typically won’t able to top up your bond during the fixed term (most bonds give you a window of a couple of weeks from account opening, after which the account is effectively locked). It’s also not possible to withdraw funds from a bond before it matures (some banks may allow this but it’s likely to involve a set penalty or forfeiting interest). As such you’ll need to be fairly decided about the sum you’re willing to lock away. Since interest is calculated as a percentage of what you invest, the more you put in, the more you’ll get out.
The interest rate. The “annual equivalent rate” (AER) takes into account the effect of the interest compounding to tell you what you’ll make over a year. All banks have to calculate it in the same way, so it’s a good benchmark for consumers to use. One account might boast a rate of 4%, compounded monthly, while another might boast a rate of 4.05% compounded annually. You’re actually better off with the former, but the AERs of both of them (4.07% and 4.05% respectively) can tell you this so you don’t have to get your calculator out.
The duration of the bond. When you leave your money in a bond for longer, there’s more time to earn interest on interest. A 3-year bond at 4% will earn you more overall than a 2-year bond at 5%, for example. Generally speaking, the longer you’re willing to lock your money away with the bank for, the better the interest rate the bank will offer – so 5-year bonds typically have better rates than 2-year bonds, for example. This is because the bank has more time to put your money to work – hopefully generating it a greater return than it pays onwards to you. But this may not always be the case, and it’s worth looking at different terms to see what rates are on offer. If the banks believe that the economy has a positive outlook, and interest rates generally are likely to start to come down in the next few years, then they may prefer to steer customers towards shorter bonds so that they’re not stuck paying “over the odds” for years on end. Banks invest significant resources in trying to work out where the economy’s headed, and let’s be honest, they usually win.
Whether you let the interest compound or have it “paid away” (to generate an income). The most lucrative option in the long run is to bag the best AER you can, and then let the interest compound in the same account. If you’re looking to generate an income instead, then many bonds can do that, but you’ll lose the opportunity to earn interest on your interest. A minority of bond issuers will stipulate that interest must be paid away to a separate account, perhaps monthly or annually. This can allow the bank to tout a higher rate, safe in the knowledge that they won’t have to compound the interest.
With our fixed bond calculator, we’ve aimed to reveal the effects of each of these factors. We use “live” product data (updated daily) and scour the whole market. Don’t forget that your interest may be taxable, and don’t forget that there are alternatives to fixed-rate bonds (you may get a better return through investing in equities for example).
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. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
Chris Lilly is Head of publishing at finder.com. He's a specialist in personal finance, from day-to-day banking to investing to borrowing, and is passionate about helping UK consumers make informed decisions about their money. In his spare time Chris likes forcing his kids to exercise more. See full bio
Chris's expertise
Chris has written 564 Finder guides across topics including:
How to get the best 1-year fixed-rate bond. Here’s what you need to know.
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We update our data regularly, but information can change between updates. Confirm details with the provider you're interested in before making a decision.
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