Best Fixed Rate Bonds

Guide about the best fixed rate bonds for your investment strategy.

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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In an era of economic uncertainty, scams, and get rich quick schemes, it goes without saying that finding a reliable investment option hasn't exactly been easy over the past few years.

Whether you've been sold down river by your favourite altcoin or you've experienced what it's like to lose all your money on futures trading, wouldn't you say it's time to focus on an option that provides true financial stability?

One of the more popular investment options that investors of all experience levels are flocking towards are fixed rate bonds. Yes, as the name suggests, these are bonds that offer a set rate of interest that becomes locked throughout the predetermined investment period.

Naturally, this can be a massive help if you're a risk-averse investor, as you know how awkward it can be to seek consistent returns in volatile market conditions.

So, in this article, we'll be going over some of the pros and cons of these investment tools, as well as providing additional tips to help you choose the best fixed rate bonds for your investment strategy.

1. Nationwide★★★★★Learn more
2. Yorkshire Building Society★★★★★Learn more
3. Zenith Bank★★★★★Learn more

Top Fixed Rate Bonds In The UK

Let's explore some of the most popular options at your disposal:

1. Nationwide

To kick things off, let's discuss Nationwide. In terms of their interest rates, they're offering 4.25% AER for a single-year term.

Unfortunately, when it comes to making early withdrawals, you'll expect the same penalties you would with any other bank or building society, so make sure you're keeping your money in the account for the whole duration of the loan

However, managing your fixed rate bond is fairly streamlined with Nationwide's online banking platform. You can view your account balance and interest rate, as well as manage your personal details and set up automatic payments, all from the comfort of your own home.

No matter if you're trying to save up for a specific goal or just want somewhere you can earn a reliable return on your cash, consider Nationwide as an option!

2. Yorkshire Building Society

Our next choice is Yorkshire Building Society, an investment bank that offers a diverse range of fixed rate bonds. First of all, customers can choose from a vast selection of different fixed terms, ranging from 1 year to around 5 years.

This is a fairly common feature for most banks, but it still allows the investor to select term lengths that suit their individual needs and goals, whether they are looking for something in the short-term or a more long-term savings plan.

Of course, it's worth noting that YBS aren't without their various limitations. For example, customers will typically be required to make a minimum deposit of £1,000, and they only offer from 3.50% AER on their single year bonds — a fairly insignificant return in comparison to the other options.

3. Zenith Bank

To finish things off, let's take a brief look at Zenith Bank. As it stands, this bank currently offers you a 5.18% annual equivalent rate (AER) on fixed rate bonds, making it one of the more lucrative options when it comes to staking your money.

Similar to all the other options in this article, Zenith Bank provides stability and consistent returns with this loan. You know exactly how much money you're going to earn throughout the course of the investment, so expect reliability when it comes to their fixed rate bonds.

Lastly, Zenith Bank gives you a decent selection of options when you're choosing the length of the term you want, so you'll always have the flexibility to do things your own way.

Benefits Of Fixed Rate Bonds

Now, let's take a look at some of the reasons you might consider investing in a fixed rate bond.

These kinds of investments are typically best made as part of a wider investment plan, and you should always try to prioritise a diverse portfolio rather than creating one solely for fixed rate savings accounts.

  • 1. Predictable Return On Investment

In essence, fixed rate bonds do what they say on the tin. These kinds of investments, while not offering excessively high returns on investments, will always give you a guaranteed interest rate. In a world where one fifteen minute candlestick can wipe your entire portfolio, any kind of predictability in the stock market isn't something to be sneered at.

In addition, you always know the exact rate of interest paid towards you over the duration of the bond, so it's a lot easier to calculate your potential returns and make any financial decisions accordingly.

  • 2. Protection Against Inflation

We'll cover this point in slightly more detail later on in the article, but fixed rate bonds can be an effective means of hedging against inflation too. Naturally, inflation has the potential to erode the value of your investments, but since fixed rate bonds work out the total amount of interest you'll be paid, your bond should keep up with inflation and retain its value over time.

This can be massively helpful as a tool to help diversify your portfolio — if you have too much capital in other investments such as stocks or a personal savings allowance, you run the risk of your purchasing power decreasing over the years as inflation takes its toll.

As such, any kind of investment that holds its own in the face of inflation, i.e. bonds or cryptocurrency, should be given serious investment consideration.

  • 3. Low-Risk Investment Option

At the end of the day, while not selling you the promise of 10x returns on your investments within a month, fixed rate bonds are generally just a sound investment option with negligible risk (especially compared to other investments, such as stocks and mutual funds).

This low risk feature is thanks to their general aversion to market volatility. No matter what the current state of the market is, you'll always receive the same fixed interest rate, so you don't need to worry as much about the traditional pitfalls of the stock market.

And lastly, fixed rate bonds are almost exclusively issued by the government or large corporations, so you can feel at ease knowing the issuer of your investment is financially stable and generally won't give you any issues when it comes to fulfilling their side of the contract once your bond has reached maturity.

For added assurance, fixed rate bonds are also protected by the Financial Services Compensation Scheme (FSCS), so you're never going to be handing your money to any bad actors.

Good Option For Retirees & Other Risk-Averse Investors

Based on a few different variables, namely their lack of volatility, fixed rate bonds are a fairly popular investment choice for retirees and any other cautious investor looking to seize an opportunity for a stable source of income.

These kinds of investors are normally more interested in guaranteed returns and predictability, rather than the sensationalism attached to something like cryptocurrency.

For any investors currently in their retirement years, fixed rate bonds also act as an additional supplement to your pension or other retirement savings.

Cons Of Fixed Rate Bonds

Unfortunately, as you'll find with all investments, fixed rate bonds are not without their list of cons that you need to keep in mind before investing.

In this part of the article, we'll be exploring all the pitfalls of these investment tools, as well as determining whether or not they still make a good investment opportunity.

Limited Flexibility

One of the most common reasons investors stay away from fixed rate bonds is because they're not the most flexible to trade.

When you're trading stocks or cryptocurrency on a trading platform, you have a seemingly endless supply of trading pairs to choose from, the majority of which being incredibly liquid markets. This means you can dip in and out of trades as you please, cutting losses at a moment's notice.

While there's a separate discussion to be had about the cons of having too much flexibility, it's the lack of liquidity in the fixed rate bond market that can make it awkward to deal with.

In addition, as they're based on a fixed term, there's no actual way to get your money back until the product matures, so you're less able to make pragmatic investment decisions if things start looking precarious.

Limited Returns

Let's face it. While these kinds of investments are stable and guaranteed to pay you back something, you're never going to make a life changing amount of money with a fixed rate bond.

Though they're incredibly useful to have in your portfolio if you're trying to promote diversification, fixed rate bonds have far lower interest rates in comparison to other investment options, such as mutual funds or trading in the stock market.

So while they're effective as a means of passive income, don't approach fixed rate bonds in the same way you would any other kind of trade.

Opportunity Cost

Next up, we have to discuss something known as ‘opportunity cost'.

Since you're investing in fixed rate bonds, you're essentially tying up your trading capital in one investment. While it's totally dependent on the amount of capital you have at your disposal, having your money locked into a single investment could mean you end up missing out on future investment opportunities that arise during this time.

As an example, if interest rates were to rise while you have a fixed term deposit, you may not have the funds to invest your cash at a higher rate of return, thus maximising your profits.

Early Redemption Penalties

Given that they were designed to be held over a fixed term period, these kinds of bonds may come with various penalties for early redemptions if for some reason you have to withdraw your capital before the end of the term.

The specifics will always depend on the terms of your agreement, but these penalties can be fairly significant, and could either be a reduction in interest or a percentage of your original investment.

So, if you're ever going to invest in a fixed rate bond, make sure you can actually commit to the duration of the term, or at the very least, choose a short-term bond instead.


And finally, it's important to be aware of all the tax implications of these investment tools. Like most investment opportunities in the UK, you have to pay tax on any of the interest you earn with your fixed rate bonds.

However, there are still other investment options for traders that are relatively tax-free, such as ISAs (Individual Savings Accounts). While these are a safe option when it comes to avoiding tax, they often come with lower interest rates than fixed rate bonds.

This means that you need to make some careful decisions regarding taxation when you're deciding which is the most appropriate option for your current financial circumstances.

Are They Still Worth Investing In?

Although fixed rate bonds have their unique list of drawbacks, there's no reason why they can't still be a valuable part of your investment portfolio.

When bought off a reputable broker and held for the full term, there's not many investment opportunities that provide consistent returns quite like fixed rate bonds do. However, it's still crucial to recognise the risks attached to these investment products, and you should always be doing your due diligence before fully committing.

Factors To Consider When Choosing A Fixed Rate Bond

It's worth noting that while each bond issuer has their own pros and cons, not every fixed rate bond is created equal.

This means that you've still got to weigh up some additional features before making the final decision and investing in a fixed rate bond online.

Throughout this section of the article, we'll be going over a few of the main factors surrounding your fixed rate savings account that you should always keep in the back of your head. We'll also mention a few tips to help you conduct your own research and find the right issuer for your financial circumstances.

The Issuer's Creditworthiness

The first factor we'll be discussing is the creditworthiness of the specific issuer you're considering. The tables are slightly turned on their heads here, as in the past, it is you that's having your credit score evaluated, whether it's to receive a loan or a new credit card.

In this case, though, we're actually referring to the issuer's ability to meet their financial obligations and repay the bond back to you once it has matured.

Whenever you're investing in a bond, you're essentially just lending your money to an issuer in exchange for them sending regular interest payments (and repayment of the total lump sum/principal once the fixed term has ended).

The problem is, though, that if the issuer you've entered a contract with has a bad credit score or is just financially unstable, there's a much higher risk of default. In these circumstances, the issuer might not actually be able to repay the bond, leading to a whole saga of legal woes and frustration between all parties involved.

Fortunately, you can avoid ever running into this kind of problem by ensuring you're only looking for bonds issued by reputable institutions with a strong credit rating.

These credit ratings are often worked out by an independent credit rating agency, and they take a range of things into account to assess creditworthiness. This includes things like the issuer's financial history, how stable they currently are, and how able they are to promptly repay any debt.

Whenever you invest in a bond that's issued by a highly rated issuer, you can generally relax more and enjoy a lower risk, relatively stable investment.

The Maturity Period

Next on our list of considerations is the length of the maturity period on your savings accounts, referring to the length of time you'll hold your bond before its expiration.

Generally speaking, any bonds that are supposed to be held for the long-term typically come with higher interest rates than shorter-term bonds. This is due to the fact that your money is being locked in for a longer period of time, meaning you need some additional incentivisation to invest.

As a result, any time there's changes in the interest rate environment, you'll continue to receive the same amount in interest payments until the bond reaches its maturity.

Unfortunately, that's not to say you're completely immune to change when it comes to interest rates, and they can actually reduce the overall value of your fixed rate bond. If interest rates were to rise, newer bonds that reflect this shift in interest become available to investors, ultimately decreasing the value of any pre-existing fixed rate bonds.

In the most severe cases, this can make it incredibly difficult for any investors to sell their fixed rate bond without incurring some degree of losses.

However, it's not all bad news, as shorter-term fixed rate bonds have much of the same benefits as their longer-term counterparts — just without the lack of liquidity. Because these bonds have a shorter expiration date, the issuer will give you lower interest rates, allowing you the flexibility to sell your bond before maturity without receiving major penalties.

To wrap things up on this point, it's vital that you're considering your financial goals and needs for liquidity when you're deciding how long the maturity period of your bond should be.

If you've got a more long-term investment horizon and are focused on steady, consistent income, then a longer-term bond might be the wiser move. Conversely, you'd take the exact opposite approach if you're looking to get in and out of your investment quickly.

Potential Risks

While it's true that fixed rate bonds are generally considered low-risk investments, that's not to say there aren't still potential risks you need to be aware of before making any major investment decisions.

Take inflation, for example. Inflation refers to the rate in which prices for various different goods and services increase throughout time. If the general rate of inflation is outpacing the interest rate of your fixed term bond, you may discover that the real return on the investment is negative.

As a demonstration, let's say there's an investor that is currently holding a fixed rate bond with a 2% interest rate. If their current rate of inflation is currently around 3%, that means the purchasing power of whatever interest payments you're making off the bond are significantly reduced.

Tips For Conducting Thorough Research

It's worth exploring a few basic tips you can employ when you're conducting your research. Many banks offer fixed rate bonds, so it's vital to know what you're actually looking for when doing your due diligence.

  1. Check the credit rating of the bond issuer to assess their financial stability and ability to repay the bond.
  2. Consider the maturity period of the bond and how it fits into your overall investment strategy.
  3. Research the interest rate environment and potential risks associated with the bond, such as interest rate and inflation risks.
  4. Compare the bond's interest rate with other fixed rate bonds on the market to ensure that you are getting a competitive rate.
  5. Seek the advice of a financial professional if you are uncertain about any aspect of the investment.

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