Best Fixed Rate Bonds - Explained
Fixed rate savings bonds, often referred to as fixed rate bonds, normally offer more competitive levels of interest in exchange for you agreeing to leave your money in them for a set amount of time. The amount of time that you are normally required to put your money away for is between one and five years.
There are a number of savers who are now looking at fixed rate bonds much more favourably because of the high level of interest that can be earned on them and also because of the certainty you can have about your returns.
Generally speaking, one to two year bonds are the most common choice. This is because people may not want to tie themselves in for much longer than that because they feel that interest rates might go up in that time. But the longer you are willing to put your money away for, the better the rate of interest you are likely to find. This means that five year fixed rate bonds will normally offer you the highest interest rates, if you are willing to commit for that length of time.
Should I choose a fixed rate bond?
Fixed rate bonds can be a great way to save your money, if you don't require easy access to the sum of cash that you are thinking of depositing. They also offer you a certain degree of peace of mind because of the fact that you will know exactly how much money you are set to earn off of the investment.
However, there are some things that you should consider before immediately signing yourself up to one of these fixed rate bonds and locking your money away. One of things that you should think about is the fact that you won't be able to access the money that you put away for the duration of the fixed rate period. Each account will have a different policy with regards to how it deals with withdrawals. There will be some accounts that will not permit you to make any cash withdrawals at all, some will allow you to do so but will apply some form of penalty by either reducing your interest rate for a month or permanently.
Another thing to consider is the fact that you will often be required to make a minimum starting deposit before you can open a fixed rate savings bond. These starting deposits can range from around £500 to £5000 and therefore may not be a viable option for those wishing to start saving from £0.
Finding the best fixed rate bond
There are huge amount of different fixed rate savings bonds available on the market, this means that finding the right one can often be difficult. There are a few things that you should always make sure you look into before deciding upon which account suits your needs the best.
Check the interest rate
This may seem like a glaringly obvious and simple thing to do but it can actually be a little bit trickier that many people initially believe. One thing to watch out for is whether or not the account works on a tiered basis. Accounts that work on a tiered basis offer different levels of interest depending on how much money you have in the account. As a result of this it is important that you check how much money your planned balance will actually earn you.
Find out how long the fixed interest rate will last for
You should always make sure that you know the exact date of when the fixed rate of interest will stop. After this point it is highly likely that you will be switched to a less competitive rate. As a result of this it is important to make sure that you have looked around to find out if you could be getting a better deal elsewhere.
Find out their withdrawal policy
Another thing that you should make sure that you do is enquire about what the account's policy is when it comes to being able to make withdrawals. There will be some accounts that are better suited to you if you need to at least have the option of taking out the money that's in there at some point.
Check the minimum investment
The majority of fixed rate savings bonds will require a minimum starting deposit, this means that if you don't have this total ready to put into the account, you will not be able to open this account at all.
How is the interest paid?
You should find out how the interest payments are handled and how often they are paid out. Some accounts will pay interest on a yearly basis whereas others will be paid on a monthly basis. There are some accounts that only pay out once the bond has matured- in other words once the agreed period has ended.
Can you continue to pay in to the account?
There are some bonds that will allow you to continue to make payments into the account after you have made your initial deposit. However there are other accounts that won't let you do this and will therefore only pay you interest on your starting deposit.