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What are the benefits of 3 year fixed rate bonds?

There are several reasons to choose a 3 year fixed rate bond (also known as a fixed term deposit). If you have a lump sum that you can lock away for three years, you could benefit from an interest rate typically higher than ISAs or easy access accounts.

Is a 3 year fixed rate bond right for you?

  • You don’t need to access your savings for three years
  • You want to know how much interest you’ll earn at the end of the three-year term
  • You want to protect your savings from possible interest rate reductions over the next 36 months
3 Year Fixed Rate Bonds3 Year Fixed Rate Bonds3 Year Fixed Rate Bonds

What is a 3 year fixed rate bond?

A 3 year fixed rate bond is a type of savings account that locks in your money at a fixed rate of interest for three years. You may also hear 3 year fixed rate bonds called 3 year fixed term deposits, 3 year fixed rate savings, 3 year fixed rate savings bonds and 3 year fixed rate savings accounts.

By opening a 3 year fixed rate savings account, the rate of interest you earn won’t change for 36 months. That means the rate stays the same for three years, irrespective of changes to the base interest rate. To open a 3 year fixed bond, you can make multiple transfers until you have reached a lump-sum deposit amount and then your money is locked in for the duration of your term.

If three years sounds too long (or too short), you can also apply for fixed rate savings accounts of different terms, such as six month, one year, two year and five year terms. It’s important to choose a suitable duration for your savings goals, as you won’t be able to access your money for the entire duration of the fixed term.

What are the benefits of a 3 year fixed rate bond?

Opening a 3 year fixed rate bond locks in your savings account for three years, and frees you of the worry of variable interest rates. A 3 year fixed rate bond might be beneficial for you if the following benefits appeal to you:

  • Earn a fixed interest rate for three years 
  • Know exactly how much interest you’ll earn
  • Protected your money from any base interest rate changes

Are fixed rate bonds a good investment?

Generally speaking, fixed rate bonds are a good investment if you’re looking to earn a competitive fixed rate of interest. Before committing to a fixed rate bond, you should always consider whether you are willing to lock your money up for the fixed term.

How do 3 year fixed rate bonds work?

You can open a 3 year fixed rate savings account by depositing a minimum lump sum, typically between £500 and £1,000, up to a maximum deposit amount of around £1,000,000 or £2,000,000. At Raisin UK, we fix the maximum deposit amount into savings accounts at £85,000 per person, per banking group to ensure the applicable deposit protection scheme still protects your money. 

The amount you can deposit varies between providers, so do make sure you check and apply for the account that suits your needs. It isn’t possible to make deposits into your account after your initial deposit, nor is it usually possible to close a fixed rate bond early.

Once you’ve transferred your full deposit amount and opened your 3 year fixed rate bond, you’ll lock away your money for the duration of the fixed term during which time it will accrue interest. You’ll gain access to your deposit and the interest you’ve earned at the end of the fixed term.

How the interest you'll earn on a 3 year fixed rate bond is advertised

The interest you’ll earn on a 3 year fixed rate bond is advertised as an annual equivalent rate (AER). How much you earn will be determined by the following criteria:

  1. The duration of your fixed term
  2. How much you deposit
  3. The interest rate (AER)
  4. How the bank pays interest

Taxpayers can earn interest on savings up to certain amounts without paying tax on that interest. Basic rate taxpayers can earn up to £1,000 of interest per year, and higher-rate (40%) taxpayers can earn interest of up to £500 per year.

How is interest paid on a 3 year fixed rate savings bond?

As with all fixed rate savings accounts, when you earn interest depends on the bank. Some banks pay interest directly to you at regular intervals, some banks compound interest and others pay at maturity. At Raisin UK, you’ll usually only have access to the interest you’ve earned at the end of the fixed term, but some savings accounts may pay out interest to your Raisin UK Account sooner. You can find out how interest will be paid by reading the details of the account you want to apply for.

What happens at the end of three years?

At the end of your three year term, you’ll have the option to choose one of the following:

  1. Accept a renewal offer (if one is available) to open a new fixed rate bond from the same bank with your original deposit amount and choose to withdraw or deposit the interest you’ve earned
  2. Move your matured funds to another savings account
  3. Withdraw your original deposit plus the interest and close the account

What to consider when opening a fixed rate savings account

  • Whether the term is appropriate for you
  • How much you can afford to lock away for this time
  • How often interest is earned
  • Deposit protection

It’s also worth considering that the Bank of England base rate of interest, otherwise known as the bank rate, could change. If the Bank of England base rate increases, your fixed rate bond interest rate won’t increase. The rate of interest that you earn will always stay the same. Conversely, if interest rates drop, the rate of your 3 years fixed rate bond won’t drop.

How many fixed rate bonds can I open?

You can apply for as many fixed rate savings accounts as you like. Just be mindful that if you open more than one savings account with the same banking group, your combined balance contributes towards your deposit protection total.

If you want to invest a large lump sum, you might consider staggering your bonds to make the most of your investments similarly to the chart below. 

Financial protection for 3 year fixed rate bonds

The Financial Services Compensation Scheme (FSCS) offers deposit protection for savings accounts from regulated UK banks. This protection covers deposits of up to £85,000 (including interest) per person, per banking group. If your bank fails, this is the maximum amount you could potentially recover.

All of the fixed rate savings accounts you’ll find in the Raisin UK marketplace include deposit protection, with savings accounts from UK banks featuring FSCS protection.

Benefits of 3 year fixed rate savings accounts through Raisin UK

You can choose from a range of 3 year fixed rate savings accounts from UK banks through our marketplace. All of these accounts are free to open and can be managed and accessed in one place. Currently, the highest interest rate for a 3 year fixed rate bond is 1.82% AER. 

If you need a savings account with more flexibility, an easy access or notice account may be more suitable.

How to open a Raisin UK account

You can open a Raisin UK Account to apply for savings accounts at Raisin UK in three easy steps. Log in, click to apply for a savings account, transfer your deposit. That’s it. Once your application is approved, you’ll begin earning money from your savings.

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