What is a Fixed-Rate Bond?

A fixed-rate bond is a type of savings account where your money is locked away for a set period, earning a fixed interest rate on your initial deposit. The agreed-upon term, or maturity period, gives you a clear idea of how much your investment will be worth when it matures.

In this blog, we’ll explore the details of fixed-rate bonds, including how they work, how they differ from regular savings accounts, and whether they are taxable. 

By the end, you’ll have the information you need to decide if a fixed-rate bond could be a good savings option for you.

How does a fixed-rate bond work?

With fixed-rate bonds, you usually deposit a lump sum into the account. In return, you receive a guaranteed interest rate offered by the bank, building society, or savings platform, paid directly into your account. The term is typically set for a specific period (such as 1, 2, 3, or 5 years), depending on your preferences and what the provider offers.

Unlike easy access savings accounts, the majority of fixed rate bonds aren’t accessible until maturity. There are certain bonds that allow access, but it’s a lot less common with these types of savings products. 

* Example scenario for your fixed-rate bond

Sarah invests £5,000 that she doesn’t need to access for a while into a 3-year fixed-rate bond offering 3.8% interest per year, paid annually (assuming annual compounding).

This means, over that time period, her returns will be as follows:

• Year 1: £5,000 × 3.8% = £190 interest → projected return: £5,190
• Year 2: £5,190 × 3.8% = £197.22 interest → projected return: £5,387.22
• Year 3: £5,387.22 × 3.8% = £204.71 interest → final balance: £5,591.93

Over the 3-year term at a guaranteed 3.8% interest rate from her fixed-rate bond, Sarah ends up with a final balance of £5,591.93 assuming she leaves her investment untouched until maturity.

What does ‘Term’ and ‘Maturity’ mean?

‘Term’ and ‘maturity’ are two of the most important words to understand when it comes to choosing a bond that’s right for you. Here’s exactly what they mean:

Term - How long the fixed rate bond is held for (i.e., 1 year, 2 years, 3 years, etc).

Maturity - The specific date when the term of your fixed-rate bond ends and you can now withdraw your funds.

Example to put it into perspective: 

• You open a 2-year fixed-rate bond on 1 Jan 2025.
• Term - 2 years is the length of time your money is held in the bond and earning interest on a compound basis.
• Maturity Date - 1 Jan 2027 is the day the term ends and you can withdraw take your investment.

Pros and cons of fixed-rate bonds

If you’re weighing up your options, here is a table of the pros and cons of fixed-rate bonds to see whether they may be suitable for your personal situation.

Note: Remember, this is not financial or investment advice. It’s important you make sure to do your own research, as everyone’s personal circumstances are different.

How many fixed-rate bonds can I have?

Put simply, you can hold as many fixed-rate bonds as you like. However, there are some limitations: each platform, bank, or building society may set a maximum balance per account, and some providers limit the number of bonds a single customer can hold.

For this reason, people may choose to spread their savings across multiple providers, taking advantage of different interest rates and maturity dates.

Do you pay tax on fixed-rate bonds?

Fixed-rate bonds are treated like regular savings accounts for tax purposes. If the interest you earn across all your savings products exceeds your personal savings allowance, you’ll need to pay tax. If it doesn’t, then you probably won’t.  However, whether tax is due can also depend on your personal circumstances, such as your income level and tax band, so it may be worth checking with a professional to confirm.

Here’s how the personal savings allowance works for each tax band as of now:

This is the allowance for non-tax-free savings interest (e.g. regular savings accounts or non-ISA bonds). Remember, these are the personal allowance rates as of the 2025/26 tax year, so these allowances could change.

If you want to stay up to date on the personal savings allowances for your savings, just head to the Government website.

Can the interest rate change?

If you’ve opened a fixed-rate bond account with a provider and gone through all the necessary steps, no, they are unlikely to be able to change your interest rate. Legally, if they’ve told you it’s a fixed interest rate for a specific period of time and you’ve done everything they’ve asked you to, then it can’t change. 

Once the bond matures, then yes, it can change interest rate, but during the set term, the rate is very unlikely to change. 

A few things you should look out for are:

• Make sure the agreement says ‘fixed-rate’, as variable accounts can change
• At maturity, the bond may roll into a standard account, where the rate can change
• Always read the small print: if it says the rate “may change,” it’s not guaranteed

Are fixed-rate bonds safe?

As a savings product, fixed-rate bonds are in many ways considered safe, as you’re getting a guaranteed interest rate over a specific time, so it’s fairly straightforward. 

If you want to avoid dipping into your easy-access savings, a fixed-rate bond might be a good way to lock money away for a specific goal and avoid temptation.

However, the set time period can be a drawback for some savers, either if you want a higher interest rate elsewhere or need access to your money sooner. Ultimately, it depends on your personal money habits and how you prefer to approach saving.

Read all the important information on our bonds page to understand all the key details.

* Terms and conditions apply.