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Term deposits explained

Term deposits are the same as fixed term deposits (also called fixed rate bonds), the only difference being the terminology. On this page, you’ll learn what a term deposit is, how it works, its benefits and how to apply for term deposit savings accounts.

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What is a term deposit?

A term deposit is a fixed term lump sum savings account. Term deposit accounts offer various terms, typically ranging from six months to five years. In the UK, a term deposit is normally called a fixed term deposit or a fixed rate bond. A fixed rate bond savings account offers competitive fixed interest rates that don’t change from the day you open the account until the end of your agreed term.

How do term deposits work?

You can open a term deposit account by depositing a lump sum that you set. Once you transfer your deposit, you can sit back and watch your savings grow. A term deposit account typically has a minimum deposit of £500 to £1,000 and a maximum of as much as £2,000,000. At Raisin UK, we want to keep your savings safe, so we’ll only let you deposit up to £85,000 per person, per banking group. This means your full deposit amount will be protected in the event the bank becomes insolvent and fails.

When you open a term deposit account, it’s important to understand that you won’t usually be able to make any withdrawals until you’ve reached the end of your fixed term, when you’ll receive your deposit plus any interest you’ve earned. Some financial institutions may allow you to make a withdrawal before the end of your term, but you will have to close your account and might receive a penalty on any interest you’ve earned.

What are the benefits of term deposits?

The main benefit of opening term deposit accounts is that they typically offer the highest interest rates of any type of savings account. Term deposit rates are fixed, so they won’t change for the duration of your term, and you’ll know exactly what you’ll earn before you start saving.

UK regulated banks that offer term deposits or fixed rate bonds are protected by the Financial Service Compensation Scheme (FSCS). The FSCS protects up to £85,000 of your savings per person, per financial institution. This gives you the confidence that if the financial institution fails, your savings will be safe and you can claim your money back. All of our partner banks are regulated, meaning that whatever savings account you open through our marketplace, your deposits are protected.

Is a term deposit right for me?

Term deposit accounts might be right for you if you have a lump sum you can lock away for a fixed term. This type of savings account might be a good choice if you plan to save for a once-in-a-lifetime holiday, for your grandchildren, or perhaps for a wedding. If you are committed to storing your money for a fixed term and won’t need to make a withdrawal, it’s worth considering term deposits.

A notice account is a good alternative if you are unsure when you will need to withdraw your money. Notice accounts offer competitive variable rates and the flexibility to withdraw your money after a set notice period, typically between 30 and 90 days.

How much can you earn from a term deposit?

At Raisin UK, you can currently up to 1.40% AER from a term deposit, but how much you earn will depend on various factors, including the following:

  • The length of your term
  • The amount you deposit
  • How interest is paid
  • The interest rate

When calculating how much you’ll earn from a term deposit, it’s also worth considering if you’ll need to pay tax on your savings. As a taxpayer, you can earn tax-free interest on your savings up to amounts that depend on the amount of tax you pay. Basic-rate taxpayers can earn up to £1,000 of interest per year without paying any tax, while higher-rate taxpayers can earn up to £500 per year tax-free.

Applying for term deposit accounts

If you want to quickly and easily open term deposit savings accounts, register for a Raisin UK Account for free and log in to apply.

If you have any questions, our UK-based Customer Services Team is happy to help.

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