Buyer's Guide: What Are Savings Bonds?

Saving bonds - also called fixed rate savings accounts - are deposits that are held as savings at banks and building societies. This money then earn a fixed rate of interest over a set period of time that you have agreed with the institution. The terms of bonds vary, but you can usually get paid a fixed rate for one to five years. The interest is earned on an annual basis and the same is credited to the depositor's account. Once you have put your money into the bond, you cannot access it until the expiry of the time agreed upon. However, this model is quite different than normal savings in that you have to agree to a certain rate of interest over the period that they will be holding your money. For most of these institutions, the longer the money stays with them, the higher the interest earned.

Factors to consider before investing in bonds

1. Fixed period: Since one cannot be able to access the money once it has been deposited, it is therefore advisable that one simply invest only the money that they will not be requiring within that period. The best way is to only invest surplus money.

2. Fixed interest rates may be risky: The rates being offered should also guide you. Make sure you get the most competitive rates according to the current market rates. However, interest rates may move against you. Should interest rates climb above what you have agreed to, your saving bonds might earn less that you would want them to.

3. Withdrawal penalties: Most saving bonds charge a penalty, usually in the form of loss of interest, if, for any reason, you decide to cancel before the bond matures.

4. You get your original capital back plus the accrued interest. The interest is dependent on the current rate and in times of inflation you can actually get less than what you invested. To make sure that your money are protected always observe the maximum amount allowed and if reached - move to the excess to another option. 

Savings bond providers

Banks and building societies are rapidly expanding and to do that they need capital. That is why there are some that offer as high as 3.50% interest. To find the best savings bond deal, we recommend that you visit a comparison website, such as Supermarket, to make your research easier. Another option, of course, is to check directly with the providers.

The information on this page is designed to help you understand more and make more informed choices. We do not receive any commissions, instead we are funded from companies that we advertise on our website.

You may also want to read about: Fixed Rate Bonds