High Interest Bonds

What You Need to Know

1. High interest bonds offer some of the best returns on the market, the trade off being that you can’t touch the money until the end of the ‘term’.
2. The ‘term’ is usually between 1-5 years, so you should only invest if you know you won't need the funds during this period.
3. The longer the term you go for, the better the fixed rate of interest you are likely to be offered, but bear in mind that, in that time, the base rate may rise above the rate you’ve fixed at.
4. High Interest Bonds are usually only offered for limited periods at a time, so you’ll need to act quickly and have a sum ready to invest.
5. The Financial Services Authority will cover an investment of up to £85,000 in the unlikely event that your chosen bank goes bust.

Locking your savings away for a year or more can earn you some of the highest interest rates on the market.

Once you’ve put your money into a high interest bond, you won’t usually be able to access it until the end of your fixed-term – which could be as long as five years depending on the deal you signed up to. Although you'll get a good rate of return on your savings, you should only invest in a fixed-rate bond if you know you won’t need fast access to your money.

How long should I fix for?

Although a longer fixed-rate might give you a slightly higher return on your cash, the length of time you fix your savings for should depend on current interest rates. For example, investing in a five year bond when rates are as low as 0.5% is a bad idea; the base rate is likely to increase again before then.

Why do bonds offer high rates?

Banks and other financial institutions always want reliable sources of investment that allow them to make money by lending. By taking out a fixed-rate bond, your bank knows exactly how long it will have access to your savings, and how much it will pay you back in interest. But because savings bonds are offered in “issues" or “tranches" that are only available until they have all been bought, a great deal might only be around for a few days. However, you should always compare savings accounts to make sure that you're getting a good rate. Just because an account offers a fixed-rate doesn’t mean it will be the best rate.

The benefits of a bond

Because banks only release sets of bonds at certain times, these types of savings are best for people with a lump sum to invest – and are popular with people approaching retirement. If you only have a small amount that you can save each month, you should consider a cash ISA instead.

Is my money safe?

The nationalisation of banking giants like Northern Rock has made some people wary of buying savings bonds with banks. But individual investments up to £85,000 are now covered by the Financial Services Authority (FSA). If you want to invest more than this, you should split your money up into different accounts to make sure that it’s covered by the Financial Services Compensation Scheme (FSCS).

If you're investing in an overseas bank, which might offer the best rate, make sure that it is fully covered by the FSCS to guarantee the safety of your savings.

Further Reading

• If you don't have a lump sum available, but want to invest gradually over time, why not open a personal ISA.
• Compare high interest bond rates using our dedicated page.
• Find out more about the FSA on their website.