If you’re looking for an easy way to earn guaranteed interest on a lump sum, then savings bonds could be a great choice for you. Our quick six questions will give you the full low down on all things fixed rate bonds…
In its simplest form, a fixed rate bond is a savings account where your money will earn a fixed amount of interest depending on the length of time you lock your cash away. With a Hodge Fixed Rate Bond, the longer the term, the higher the interest. And as the interest rate is fixed in advance, you’ll know before you invest exactly what your return will be.
Depending on the type of saver you are and the saving goal you have in mind, there are a few benefits to a fixed rate bond.
An ISA (Individual Savings account) is a great, tax-free way of saving. ISAs typically offer rates that aren’t as competitive as fixed rate bonds. But they can be more flexible if you need to make a withdrawal (although you may incur a fee depending on the financial institution). The maximum you can save tax free in ISA accounts is £20,000 for the 2022/23 tax year.
A fixed rate bond typically offers higher interest rates, but you won’t be able to access your money for a fixed period. Fixed rate bonds don’t offer a tax free amount.
Check out Hodge’s guide to ISAs to find out more.
Fixed rate savings bonds are usually best suited to those depositing a large amount of money. The longer your fixed term, the higher interest rates you’ll unlock – allowing you to really let your money do all the heavy lifting.
However, you should only consider this type of savings account if you won’t need to access your money for a fixed period. Additionally, if you’re a regular saver, fixed bond savings may not be suited to you as, after opening your account, you’ll have a set period to deposit your money, then after that you won’t be able to add anything else.
Most providers offer a set period, usually 1 to 5 years. Fixing your rate for a longer period will usually offer you higher rates but before you commit to locking away your cash, think carefully about financial situation. If you want to withdraw your money early, then some providers will allow this but may charge an exit fee.
If you’re aged 18 years or older, are a UK resident and have a lump sum of at least £1,000, you can take advantage of our fixed rate savings bonds. It’s free to open and you can apply online in under 10 minutes.