Fixed Rate Bonds: Are They Safe?

When it comes to saving for your future, getting started is often the hardest part. It can be tricky to figure out where to save your money, how much to put away, how often, for what length of time, and so on, as the choices seem endless. One of the biggest concerns you may have if you’re new to savings plans is around the safety of your money, as there aren’t always guarantees that your money will grow as much as you’d like it to. However, there are some options that are less risky than others.

There are plenty of different savings vehicles out there for you to consider, and a Fixed Rate Bond is one that could be suited to you – but how safe are these to save in? Find out in our expert guide below. 

What differs a Fixed Rate Bond from other savings options?

One of the main ways that a Fixed Rate Bond differs from a lot of other savings options is that your money is locked in for a fixed amount of time with a fixed interest rate. This applies until your plan matures, after which you can access the money in the bond.

Another difference is that a Fixed Rate Bond is a single lump sum contribution made at the start of your plan, that you cannot add to throughout the fixed timeframe. Your money will then build up at the rate of interest agreed when you started your plan. This can make it a reliable savings option, as you know exactly what you’re going to get at the end of the set period, unlike many other types of savings plans. Therefore, Fixed Rate Bonds are often considered a safer choice, depending on your savings goals and appetite for risk. 

In comparison, other types of investment or savings plans such as a stocks & shares ISA may be subject to periods of market volatility or fluctuating interest rates, so with these options the value of your returns can go up and down over time. Another notable difference with savings and investment plans that aren’t fixed is that you can take your money out at any time, which you can’t do with a Fixed Rate Bond.  

Benefits of a Fixed Rate Bond 

There are plenty of benefits to a Fixed Rate Bond savings plan, some of which include: 

• A guaranteed interest rate for the full length of the term – there is no chance of this fluctuating. Therefore, you know exactly what amount of money you’ll get back when the bond has matured. 
• Higher interest rates than typical easy-access savings plans. 
• Fixed Rate Bonds are a good way to diversify your financial portfolio – having one of these means that you have back up funds waiting for you further down the line, which can complement the other ways you manage money. 
• With Shepherds Friendly, your savings plan is kept safe and steady for the whole term as your bond has guaranteed protection. 

One of the biggest appeals of a Fixed Rate Bond savings plan is that it provides you with certainty – you know precisely how long your money will be put away for and what interest rates will be locked in, so there is no question of how much it will be worth when it matures. 

Are Fixed Rate Bonds covered by the FSCS? 

Our Fixed Rate Bonds are covered by the FSCS (Financial Services Compensation Scheme), therefore, if anything were to happen to your Fixed Rate Bond savings plan with us, your deposit and interest earned would be safe regardless of this. This means you have one less thing to worry about! Our bond acts as a life assurance policy as well as a savings plan, so if you were to pass away during the five years the plan is active, your estate would receive 101% of what you’ve saved plus interest earned.

What are the risks of Fixed Rate Bonds?

Whilst Fixed Rate Bonds are considered a safer savings option, there are still some risks involved. One of the main things to keep in mind with this type of plan is that there are different term lengths and interest rates.

Usually, the longer you lock in, the more chance there is that interest rates will change outside of your bond, which may or may not work in your favour. This isn’t something that can always be predicted, especially for long-term plans, as interest rates are harder to forecast further into the future. For example, some plans offer you the option to save for a decade or more, which could potentially yield lower returns over time. At Shepherds Friendly, our Fixed Rate Bond is for a set period of five years. 

With Fixed Rate Bonds, you cannot withdraw money from the plan until it has matured (at the end of the agreed term). Therefore, this could be a risk for you if you wish to access your savings before the set time has passed. With our Fixed Rate Bond, you may access your money in exceptional circumstances though, for example, if you were diagnosed with a terminal illness.  

It’s always important for you to give careful consideration to how much you can afford to put away. Whilst this could be seen as a risk involved with the bond, if you only put away an amount you know that you can afford, then it shouldn’t be an issue. Having an emergency fund as another form of savings is also a great idea to give you added financial security. This can also mitigate the risks of a Fixed Rate Bond, as you can fall back on your emergency fund should you have an unexpected expense or loss of income. 

Are Fixed Rate Bonds a safe way to save?

All in all, Fixed Rate Bonds are considered one of the safer savings options available, as you know how much money you’ll get back when your plan matures, and when this will be. You also avoid the risks involved with market volatility. Therefore, Fixed Rate Bonds present fewer threats than many other types of savings plans. A Shepherds Friendly 5 Year Fixed Rate Bond is a great savings option for you to consider if you want to know exactly what your plan will be worth once it matures after the 5-year term.