In it for the long haul: should you invest in fixed rate savings bonds?

The challenges of the last few years have simply highlighted how important it is to have some money set aside as a safety net. However, recognising the need to have savings is only the beginning. Just as important is working out what sort of savings account will make the best use of the savings you have.

In this article, we explore some of the pros and cons of investing in fixed rate savings bonds.

Fixing your savings

Fixed rate bonds allow you to receive a set rate of interest on the money kept within the bond for a specific period of time, usually over a number of years.

Typically, building societies and banks have offered a better rate for this type of account than on their easy access savings accounts in return for the certainty of holding the money without the saver being able to withdraw their funds.

As the Bank of England Base Rate has increased over the last year, the rates offered on these bonds have become far more attractive.

The big selling point for fixed rate bonds is that they offer certainty of return. Savers know precisely what rate they will receive on their money for an extended period, removing the need to consistently shop around or the worry that their hard-earned savings won’t eventually earn much.

What’s more, fixed rate bonds offer protection from rates falling elsewhere – if you lock into a fixed rate bond for three years, then you’ll continue to receive that rate even if rates on savings deals drop substantially, meaning a guaranteed return in the long run.

However, savers should know that fixed rate certainty can work both ways. If interest rates across the market continue to increase over the term of your fixed rate bond, then you may find that the deal you signed up for is no longer quite so competitive and you’re tied into that deal.

As a result, before putting money into a fixed rate bond you might want to consider what you think is likely to happen to rates over the coming years. Economic forecasts can be an indicator but if there’s one lesson we’ve all learnt over the last few years is that the future is never guaranteed.

Retaining access

The downside to fixed rate bonds has always been that they involve giving up access to your money for the period of the bond. That can be a relatively modest term, like a year or 18 months, or it may stretch to something more substantial like five years.

This is fine if you are unlikely to need that cash for that period, but it can prove more problematic if there is a chance you will need to be able to access it at some point. After all, having an emergency stash of money which you can get hold of when necessary is essential for all savers.

While an easy access account is the obvious alternative, the reality is that by their very nature these deals tend to deliver the lowest returns in terms of the interest paid on your money.

That’s why it may be worth considering a notice account as a compromise. As the name suggests, these accounts offer access to your money so long as you provide a minimum level of notice to make a withdrawal or close the account. The level of notice can typically vary from as little as 30 days to as much as 180 days.

Generally, the greater the level of notice, the higher the rates of interest tend to be, with notice accounts providing a middle ground between easy access accounts and fixed rate bonds.

Making the most of your savings

Being able to maximise your savings income alongside any access requirements can be a difficult balancing act. To get the most out of those savings, it’s therefore vital to work out what form or combination of savings accounts best meets your needs and not to focus solely on a tempting headline rate.

If you’d like to speak to someone about savings, you can enquire online, visit one of our branches or call us on 01623 676350.