Fixed Rate Bonds
Fixed Rate Bonds
If you are looking to invest a lump sum of money, the best way to do this is often with a fixed rate bond. As already hinted by their name, fixed rate bonds pay a fixed amount of interest over a specified period of time.
The Benefits of Fixed Rate Bonds
One of the major advantages of this type of savings account is that these accounts tend to offer the best interest rates. In addition, these rates are guaranteed for the term of the bond as opposed to traditional savings accounts which offer varying amounts of interest.
The longer the bond, the higher the rate of interest is likely to be. However, when you lock your money for a long period time you run the risk of rates rising. Therefore, it is important that you choose a fixed bond savings account which achieves a suitable balance.
Another great thing about this type of savings account is that they are very easy to set up and manage. You do not need to worry about making monthly deposits or plummeting interest rates.
The Drawbacks of Fixed Rate Bonds
One of the major drawbacks of this type of savings account is that individuals there are limits of penalties of withdrawing money from this type of account. This can be problematic in the case of a financial emergency.
However, if you are looking for a savings account which allows you to dip into your money from time to time, there are numerous instant access savings accounts available. Nevertheless, flexibility often comes at the cost of lower interest rates.
Another potential drawback of this type of savings account is that they typically require a larger opening balance than other types of accounts. Typical opening balances vary between £1,000 and £2,000.
Factors to Take into Account
The first factor that you will need to take into account is how long you are willing to put your money aside for. Typically, terms vary between six months and five years.
Some companies offer tiered rates of interest so it is important that you have a clear idea of how much money you want to invest before you start comparing the various fixed bond options available to you. In addition, it is important that you are able to meet the minimum opening balance. Some banks require higher opening balances than others.
You should compare the internet rates of a number of financial institutions. There are a number of comparison tools which can help you quickly compare the interest rates of a variety of accounts.
Unfortunately, fixed bond accounts are taxable. This means that once tax is deducted, the fixed bond return rates may be less desirable than a fixed-rate ISA.