Deal Review for Fixed Rate Bonds

If you have spare a bigger amount of money and you won't need it for some time, you might wonder what purpose they will serve best. You have a few options -- savings, investment or bonds. Fixed rate bonds are issued by a bank or a building society with a fixed length of 6 months to 5 years. Their interest rates start from 3% and could go up to 5. This makes them a great option if you have a larger amount of money to put in.

Key points of fixed rate bonds

• Put in a lump sum of money as you wouldn't be able to add in to it later.

• The interest rate is fixed so it won't go up or down during the term.

• No withdrawals allowed until the term is up. Some bonds might have such an option but this will come with an interest penalty charge.

• Bonds are usually sold only for short periods -- 8 weeks the most and the best bonds are sold out within a week after they are put on the market.

• There is a minimum investment requirement on most bonds.

• Fixed rate bonds are the best option if expectations are for fall in interest rates.

Advantages of fixed rate bonds

• Fixed rates -- as said above -- you will get a fixed amount equal to the interest on the amount you've put in the beginning and it won't change unless you get a withdrawal penalty.

• Guaranteed by the government -- the money invested in fixed rate bonds are guaranteed up to £85,000 by the government.

• Easy to open and operate -- They can be opened either online, in a branch or over the phone. The whole process won't take more than 10 minutes. As there are no withdrawals until the end of the term there are no hidden operational fees. You just put the money in the bank and remember of them once the end of the term is.

• Huge choice -- there are constantly 100+ fixed rate bonds on the market to compare.

•  Safe -- you can not lose your money - they are guaranteed to get back at the end of the term agreed along with some interest that you have gathered through the time. The only way you could lose money is if you try and withdraw your bonds before the end of the term. 

Disadvantages of fixed rate bonds:

• Locked up money -- fixed rate bonds lock money up for certain terms. The best way to deal with this is to invest in them only 50% of your savings so that you can operate with the rest as you wish.

• Interest rates going up -- in such case they will become uncompetitive. If a rise in interest rates is expected -- don't invest your money in fixed rate bonds.

How and where to buy?

You can try any bank or building society -- most of them offer fixed rate bonds on the market. Investing in fixed rate bonds can be either done in branch, over the phone or online. Online is usually the best choice as you can compare many bonds and choose the one that will suit you best in terms and rates.

The most important thing to decide on first is - what amount you want to invest. As these money are locked up for the next year at least, make sure you have done the deeds right. After that compare the options each fixed rate bond offers and choose the one that suits your requirements.

Visit MoneySupermarket and LoveMoney for a greater choice on fixed rate bonds.

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