Thinking about investing your money in a 5 Year Fixed Rate Bond? They can be a good way to get a better return than a standard savings account, but it’s important to understand how they work before you commit.
Typically, savings bonds come with a fixed interest rate, but you can also find ones with a variable rate. With a fixed rate bond, you receive a guaranteed set amount of interest during the set term.
When interest rates are low, returns on easy-access savings accounts may be lower than some fixed-rate savings products. Fixed-rate bonds can offer greater certainty over the interest rate you will receive during the term, although your money is usually locked away until the bond matures.
In this guide, we’ll cover:
- What a fixed rate bond is and how it works
- The benefits and risks you need to consider
- How your money is protected
- How to decide if a bond is the right choice for you
What are fixed rate bonds?
A fixed rate bond is a type of savings account where money is borrowed from you. A lump sum is locked away for a set amount of time.
In return, the provider pays you interest. With a fixed rate bond, the interest rate is usually fixed for the entire term.
This is different from a regular or easy-access savings account, where you can take money out whenever and the interest rate can go up or down. With a fixed rate bond, you can’t usually access your money until the term ends.
Are they safe?
Fixed rate bonds can be a safe way to grow your money, if you choose the right provider.
When you’re choosing providers, check is if your money will be protected. It is usually a good idea to choose a provider that is covered by the Financial Services Compensation Scheme (FSCS). The FSCS is a free service that protects your money if a financial firm fails.
- For deposits held with UK banks, building societies and credit unions, the FSCS protects up to £120,000 per eligible person, per authorised institution (increased from £85,000 in December 2025)
- Some providers, including Shepherds Friendly, offer products that may be protected by the Financial Services Compensation Scheme (FSCS). For eligible long-term insurance products, the FSCS may pay 100% of a valid claim with no upper limit, subject to FSCS rules and eligibility criteria.
In short, savings bonds can be very safe. If you save with a reputable provider covered by the FSCS, your money is protected.
Are fixed rate bonds a good idea?
The advantages of savings bonds are wide reaching. Here we explain the main ones:
- You can expect higher rates of interest: The biggest benefit of a fixed rate bond is that it usually pays a higher interest rate than a regular savings account. Whilst it is dependent on the market condition, the rate is often higher than the Bank of England’s base rate.
- They can be more stable: Fixed rate bonds offer a guaranteed interest rate for the whole term. This gives you stability because you know exactly how much you’ll earn. With other accounts, the interest rate can change over time.
- Better security on large sums: It is usually a good idea to choose a provider that protects your money. Check if they are covered by the Financial Services Compensation Scheme (FSCS). The Shepherds Friendly 5 Year Fixed Rate Bond benefits from FSCS protection. As a life assurance savings plan, it is covered by the FSCS rules applicable to eligible long-term insurance products, which differ from the deposit protection rules that apply to bank and building society savings accounts. Eligibility criteria and FSCS terms apply.
- You can avoid the temptation to spend: Fixed rate bonds are generally suited to people who have money they can put away for a fixed period without needing access to it. Because funds are usually locked in until maturity, they may not be suitable for individuals who may need access to their cash in the short term.
Things you need to consider before opening a savings bond
While savings bonds have benefits, you also need to know about the downsides.
- Not as flexible:When you save in a bond, your money is locked away for a set time. You must be sure you won’t need this money until the term ends. If you want to take it out early, you usually face a penalty. This also means you can’t switch to a different product if you see one with a better interest rate.
- Not all savings bonds are regulated: It is sensible to choose a provider that is regulated and covered by the FSCS. Some companies that offer bonds are not regulated, which means saving with them could put your money at greater at risk.
- Tax can be confusing: Tax can be confusing: The tax treatment of savings depends on your individual circumstances. Some people may be able to earn savings interest tax-free through available tax allowances. The Shepherds Friendly 5-Year Fixed Rate Bond works differently, as tax is paid within the fund that generates the bond’s return. Depending on your tax position, there may be no further tax to pay, although higher-rate taxpayers could have an additional tax liability in certain circumstances. Tax rules can change and depend on your personal circumstances
- Bank of England interest rates could rise: Bank of England interest rates can go up as well as down. If they rise after you’ve opened your bond, more competitive rates might become available. Because your money is in a fixed rate bond, you would have to stick with your rate and could not switch to a new one.
Should you lock your money away in a Fixed Rate Bond?
If you’re thinking about a 5-Year Fixed Rate Bond, it’s important to look at the good and bad points first. Here is a summary to help you decide if it’s right for you.
A Fixed Rate Bond might be the right choice if:
- You want higher interest rates than you’d typically get from a standard savings account.
- You want stability with a guaranteed interest rate.
- You want to know your money is secure and protected (check for FSCS cover).
- You want to be disciplined with your savings and won’t need access to the cash.
However, a Fixed Rate Bond may not be suitable if you aren’t happy with the following:
- Your money is tied up for a set time. You can only get it early in rare cases, and usually with a penalty.
- Depending on your personal circumstances, you may have to pay tax on the returns you receive from a bond
- If interest rates rise, you won’t be able to switch to a better deal until your bond matures.
Please note: No advice has been given by Shepherds Friendly, and if you are in any doubt as to any aspect of this savings product, then you should contact a financial adviser. There may be a charge for financial advice, and the cost should be confirmed to you before any advice is given.
