There are lots of different choices for savers but a fixed rate bond may be one that you are considering. IT is a good idea to think about whether this might be a good option for you. It is therefore good to think about what this bond is and whether it will work for you.
What is a Fixed Rate Bond?
A fixed rate bond is a type of savings account where you can save you money at a fixed interest rate. This means that for the duration of the bond, the interest rate will remain the same. This term will vary between bonds and will be at least a year but could be usually anything up to five years. The term will be determined by the provider and will be set in a number of exact years. The bond will tend to start on a specific date and will mature on a specific date, so all holders will open their accounts on the same day and their bonds will mature on the same date.
What are its Advantages Over Other Savings Accounts?
- A fixed rate bond often has a higher interest rate than some other types of savings accounts especially instant access accounts. They want to reward you for letting them have your money for a long time and so the rates will be more attractive.
- You cannot draw the money out easily and sometimes not at all which means that you if you want to make sure that you will not be able to get hold of your money then this could be a good way to do it.
What are the Disadvantages Over Other Savings Accounts?
- Although the interest rate can be high when you take out the bond, if you keep the money in it for five years, you could find that the interest rate goes up and there are more attractive accounts but you will not be able to use them. You could also find that you might even find better bonds, but you will not be able to transfer your money.
- If you need the money, you may not be able to get it at all. There are some fixed rate bonds where you can withdraw money but you will forgo your bonus or some interested. There are some where no withdrawals are allowed at all. It could be a case of making sure that you check this out before you take out the bond so that you can be clear on what the rules are and decide what you think will work for you.
- You may find that there are limits on how much you can put in the bond. You may have a minimum as well as a maximum amount that you can put in the bond and this could restrict you.
Is it Right for me?
It is important to think about whether this type of savings account will work for you. Consider whether you will be happy tying your money up for this amount of time. Of course, you may just pick a one year bond and then it will not be that long compared to a five year bond. You may also be able to choose a bond which allows withdrawals which could be less of a risk. You should also think about whether you are willing to take a risk on the fact that you might get a better interest rate but you may not be able to move the money. You also need to think about how much money you have available to save and whether that is an appropriate amount of money to work with this fixed rate bond that you are interested in.