Glossary · UK
What is Fixed Rate Bond (Savings)?
A savings account that pays a guaranteed fixed interest rate for a set term, usually one to five years, in exchange for locking the money away without access until maturity.
Full Definition
A fixed rate bond (sometimes called a fixed rate savings account or term deposit) is a savings product where the saver deposits a lump sum for an agreed fixed term -- commonly one, two, three or five years -- in return for a guaranteed interest rate that does not change even if the Bank of England base rate or general savings rates move during the term. Because the rate is locked in both ways, savers benefit if market rates fall after they open the bond, but lose out if rates rise, since they are normally unable to add further money or withdraw funds early without incurring a penalty (often a loss of a set number of days' or months' interest, or in some cases losing the enhanced rate entirely). Fixed rate bonds typically pay a higher rate than an easy access savings account, compensating the saver for giving up flexibility, and interest can usually be taken as a monthly income or left to compound annually until maturity. As with other UK savings accounts, deposits are protected up to £85,000 per person per banking institution under the Financial Services Compensation Scheme, and interest is taxable (subject to the Personal Savings Allowance) unless the bond is held inside an ISA wrapper.