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What are the benefits of a 5 year fixed rate bond?

If you have a lump sum that you can lock away for five years, a 5 year fixed rate bond (also known as a 5 year fixed term deposit) might be right for you, especially if you’re looking for a savings account with a fixed interest rate that’s typically higher than what you would earn from an ISA or easy access account.

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What is a 5 year fixed rate bond?

A 5 year fixed rate bond is a savings account wherein the interest rate is fixed for five years, regardless of whether the Bank of England base rate increases or decreases. You open it with a lump sum deposit that you choose when applying for the account, and once your account opens, your money is locked away to earn a fixed interest rate for the next five years.

Although 5 year fixed rate bonds are also called 5 Year Fixed Term Deposits, 5 Year Fixed Rate Savings, savings bonds or fixed rate savings accounts, these are different names for the same savings account.

How do 5 year fixed rate bonds work?

You open a 5 year fixed rate bond with a lump sum deposit that you lock away to earn a fixed interest rate for a full five year term, meaning that you won’t be able to access these savings until the five-year term elapses, you typically can’t withdraw your money before the end of the fixed term and you can’t make further deposits once your term begins.

As you’re locking your savings in for five years, it’s important to find an account that earns as much interest as possible and suits any other requirements you may have. To give you an idea of how much interest 5 year fixed rate bonds typically earn, the best interest rate on our marketplace right now is 2.00% AER.

Most fixed rate savings accounts require a minimum and maximum deposit, typically somewhere between £500 and £2,000,000, although this will depend on the savings account provider. Because deposit protection from the FSCS is only available on deposits of up to £85,000 per person, per banking group, that’s the maximum we’ll allow you to deposit into a savings account, so you can rest assured your money is always safe at Raisin UK.

Should I open a 5 year fixed rate bond?

Whether you should open a 5 year fixed rate bond depends on your savings goals and circumstances. It’s a long time to lock a lump sum of money away, but you don’t have to worry about changes that could affect the interest rate you earn during those five years. A 5 year fixed savings account might be right for you if you meet the following criteria:

  • You don’t need to access your savings for five years
  • You want to know how much interest you’ll earn at the end of the five-year term
  • You want to protect your savings from a possible reduction in interest rates over the next 60 months

Are other fixed terms available?

Yes, at Raisin UK you can apply for the following fixed rate savings account terms:

You could consider opening fixed rate bonds of different terms. As you can see from the chart below, this gives you the opportunity to maximise the higher interest rates of longer-term bonds, while taking advantage of having an account mature every year: 

How to choose the best fixed rate bonds

How you choose the best fixed rate bond for you entirely depends on your savings goals and how long you can afford to lock away your money. There are many different accounts available, and it’s a good idea to conduct some research before you commit. Important factors to consider include the following:

  • How long are you happy to lock away your money for? 
  • Is the interest rate you’ll earn enough to meet your savings goal
  • Are there any additional payments on top of the interest, such as a bonus? 

How much interest will I earn?

At Raisin UK, the interest rate is always advertised as an annual equivalent rate (AER). The actual amount of interest you earn depends on your fixed term duration, the amount you deposit when you open your account and how the bank offering your fixed rate bond is paying out interest. 

Typically, interest is paid by the bank annually or upon maturity. Before you apply for any savings account, it’s beneficial to check that the interest payment method suits your needs.

Can I withdraw from a 5 year fixed rate bond?

When you commit to a fixed rate bond, you agree to lock your money away for a fixed term. Before opening a fixed rate bond, it’s important to consider that should you want to withdraw money, you may not be able to do so, or you may face penalty charges.

Do I need to pay tax on earnings from my savings?

Whether you need to pay tax on the interest you earn from a savings account depends on your tax banding and how much interest you earn. Basic rate taxpayers can earn up to £1,000 per year in interest before paying tax on their savings account earnings. Higher-rate (40%) taxpayers can earn up to £500 per year in interest before paying tax on their savings account earnings.

Is your money protected in a 5 year fixed rate bond savings account?

Yes, as long as you open a regulated savings account that includes deposit protection. UK regulated banks should include deposit protection of up to £85,000 per person, per banking group through the Financial Services Compensation Scheme (FSCS). This deposit protection is designed to help you recover your funds if the banking group you have deposits with fails. 

At Raisin UK, your money is protected every step of the journey, from your Raisin UK Account to a savings account and back again. When you apply for 5 year fixed rate bonds through our marketplace, you can rest assured that all of the savings accounts offered by our UK partner banks include FSCS deposit protection. 

What happens at the end of the fixed term?

At the end of your five year term, you may receive a renewal offer for a savings account with the same bank. If a renewal offer is available, you can choose whether to renew with your original deposit and any interest you’ve earned or just your deposit and withdraw your interest. You can also choose to move your funds to a new savings account or withdraw your original deposit along with any interest earned. 

5 year fixed rate bonds at Raisin UK

Currently, the best interest rate for a 5 year fixed rate bond through our marketplace is 2.00% AER. Our marketplace features a choice of savings accounts from different banks that are free to open and manage in one place; your Raisin UK Account. It only takes a few minutes to register, and once you’ve registered with us, you can apply for savings accounts in our marketplace in a few clicks.

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