Updated: February 13, 2020

Savings Bonds

Could savings bonds be the right option for your money? Find out how they work and how to get the best deal in our guide

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Richard Angliss

Author: Richard Angliss - Finance Expert

Updated: February 13, 2020

Want to stash away some funds and receive guaranteed interest to build towards your savings goals? One secure way to do this is by investing in savings bonds.

Whether it’s paying for your child’s university fees or a mortgage deposit, savings bonds can help make it possible through fixed interest returns on your investment. But savings bonds can be a complex area of finance – many people don’t fully understand how they work or when to invest.

In this article, we’ll explain everything you need to know about savings bonds.

We’ll cover…

What are savings bonds?

Savings bonds are typically offered by banks and building societies as an investment for a set term.

These organisations often need access to more money quickly and a bond fills this need by enabling lots of different investors to lend them money. In a bond, thousands of investors each lend a percentage of the funds needed. These investors or creditors can then buy sell or swap the portion of the ‘bond’ or ‘debt’ they’ve purchased.

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How do they work?

As a low-risk investment, savings bonds offer a secure way to invest money and receive guaranteed interest paid back over the long-term. You can choose the length of the term and fixed interest rate that best suits your financial goals. The term can be anywhere from six months to 30 years, but the longer your set term, the better the interest rate you can expect.

To open a savings bond, you need to invest a one-off lump sum. The minimum deposit is often £100 but this could shoot up to £10,000 depending on the type and terms of the bond.

Should I invest in a savings bond?

Bonds are a good option for long-term savings which accumulate gradually over time and offer you the security of knowing exactly how much interest you’ll earn at the end of your term. This could help you save for the long-term with a higher fixed interest rate than you may get with other investments. But unlike an easy access savings account, you can’t easily access your bond until the term is up. There’s often a penalty for early withdrawals and you could lose some interest earned, so it’s important to ensure you’re able to stow away the cash for the length of your savings bond term.

An expert can help you understand whether investing in a savings bond would be best for you. Financial advisors also understand the investment landscape and will know which banks offer savings bonds on the terms you need.

How can I compare savings bonds?

Although many high street banks and building societies offer savings bonds, interest rates and terms can vary significantly, so it’s important to shop around and compare offers to make sure you’re getting the best deal. Online comparison websites are one way to do this. They can help you compare rates and terms across a broad range of providers, but these sites will only give you basic information.

For more detailed information about bond terms, such as whether you can select a bond that pays out interest earned monthly rather than annually, or early withdrawal penalties, you’ll need to enquire with each potential provider.

Many people chose to work through a financial advisor who can do this legwork for you, warn you about any hidden fees, and save you time and money by taking you directly to your best-match offer.

Best buy savings bonds

The best savings bonds to consider in 2020 are obviously the accounts which offer the best rates and terms you’re happy with, but bear in mind that banks regularly update and change their fixed bond interest rates, so it’s worth checking in with an independent financial advisor who keeps a close tab on any market rate changes and can take you directly to the best deals.

This list is by no means comprehensive, but here are some of the best interest rates for savings bonds currently available in the UK…

  • PCF Bank – 7 year fixed rate bond with 2.15% interest
  • Wesleyan Bank – 5 year fixed rate bond with 2.15% interest
  • United Bank UK – 5 year fixed rate bond with 2.1% interest
  • RCI Bank – 5 year fixed rate bond with 1.9% interest
  • Skipton Building Society – 5 year fixed rate bond with 1.25% interest
  • United Trust Bank – 5 year fixed rate bond 2% fixed
  • My Community Bank – 3 year fixed rate bonds pays 1.9% interest
  • Shawbrook Bank – 2 year fixed rate bond 1.64% interest
  • Paragon – 2 year fixed rate bond with 1.6% interest
  • Cynergy Bank pays 1.4% for one year fixed rate terms

Best 12 month bonds

  • First Save – 1 year fixed rate bond with 1.8% interest
  • Habib Bank Zurich – 1 year fixed rate bond with 1.55% interest
  • Atom Bank – 1 year fixed rate bond with 1.65% interest
  • Ikano Bank – 1 year fixed rate bond with 1.56% interest
  • Charter Savings Bank – 1 year fixed rate bond with 1.55% interest

Best business bonds

Business bonds work in the same way as personal savings bonds. They’re available to all businesses to invest in, although the qualifying terms for some bonds may be related to company turnover.

Here are some examples of business savings bonds:

  • Virgin Money offers a 1 year fixed rate business bond with 1.60% interest
  • HTB offers a 1 year fixed rate business bond with 1.61% interest
  • Charity Bank offers a 1 year fixed rate business bond with 1.20% interest

What is a Cash ISA bond?

If the interest on your savings bond exceeds your Personal Savings Allowance, it may be subject to taxation. But setting up a cash ISA bond, a savings bond that can be invested in through an ISA, could offer guaranteed return on savings – tax-free.

A Cash ISA with a fixed rate bond offers a fixed interest rate for the entire bond term as well as tax free interest. However, the savings and tax implications of investing in a savings bond versus a cash ISA bond can be a complex area of finance to understand, so it’s best to speak to a financial advisor before making any far-reaching investments.

How do I cash in a savings bond?

Savings bonds offer a secure way to stow away cash for the long-term, but what happens if you need to access your cash before the bond term is up?

The terms of withdrawal vary from one provider to the next, but ‘cashing in’ your savings bond before the term expires could lead to losing your interest earnings and paying a withdrawal penalty.

If your bond has reached maturity but you need to cash it in right away, you could simply reinvest the money into another savings account and continue to benefit from compounding interest.

Cashing in bonds after death

After a bond holder dies, the person who carries out the instructions in their will, the executor, can cash in your savings bond, or opt to keep it invested until the term is up. So if you have a long-term savings bond, carefully drafting a will that gives your loved ones or beneficiaries the freedom to use the money will ensure your investment can be used in the most profitable way possible.

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Savings bonds could give you a higher rate of return than what you’d get if you keep your money in a simple savings account. They offer a secure way to make your money work for you through compound interest and guaranteed rates. But you’ll need to ensure it’s the right investment choice for your situation and you’re happy to stow away funds for the long-term.

This is where a financial advisor can help; an expert will take your entire situation into account and advise you on the best course of action. They’ll also know where to look for any potential hidden fees and how to find the best interest rates.

We work with the best financial advisors from across the UK, make an enquiry with us or give us a call on 0808 189 0463 –  we’ll connect you with the right advisor for your situation.

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We can help! We know everyone's circumstances are different, that's why we work with brokers who are experts in investment bonds. Ask us a question and we'll get the best expert to help.

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Richard Angliss

Richard Angliss

Finance Expert

About the author

Richard Angliss has made a career in financial services which stretches over 40 years.

His early career was spent learning about the various financial products and applying them to prudent advice, working for one of the largest life assurance and investment firms. After that he joined the financial services arm of a very well-known firm providing independent advice to their 8 million customers.

For the last 20 years he has been involved in building software solutions that help Advisers and clients work together to achieve good financial outcomes and helping to set up three independent advisory firms. He also has written many articles for financial services publications and provided commentary for newspaper journalists.

At an early stage in his career he realised the great satisfaction that comes with being able to help people achieve their goals and protect their families. “Regulation of financial services has hugely impacted on ensuring people get appropriate advice. The issue these days is access to that advice and just as importantly regular reviews to make sure that everything stays on track”.

With the growing development of online resources such as Online Money Advisor he sees a great future for people to access advice to make their pension and investment work harder for them.  Plus, of course, to ensure they have insurance products in place that will be required when unforeseen events happen.

He knows getting that balance right is crucial to prudent financial planning and the wellbeing of individuals and their families.

FCA Disclaimer

*Based on our research, the content contained in this article is accurate as of the most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms that are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs.

Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.

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