The Financial Services Compensation Scheme (FSCS) guarantees that it will step in to compensate the first £85,000 (£170,000 for a joint account) you have saved with a UK-authorised bank, building society or credit union in the event that the business goes bust.
Compare 2 year fixed rate bonds
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Please note: This calculator provides estimations based on assumptions such as that you do not make withdrawals. You should always refer to the account provider for exact figures as they may vary from our results. Interest may be taxable.
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If you’re looking for a home for your savings, and you won’t need to access them for two years, a 2 year fixed rate bond is a good option, if you can find one paying a decent amount of interest. Here’s what you need to consider, including the pros and cons and how to compare and choose the best one for you.
What are 2 year fixed rate bonds?
Fixed rate bonds involve depositing a set amount of money for an agreed period of time at a fixed interest rate. With 2 year fixed rate bonds, the money is locked in for a period of 2 years, although there are other fixed terms available, which usually range from 1 to 5 years.
With a 2 year fixed rate bond, normally you won’t be able to add money to the savings pot or withdraw it for the duration of that 2 years. The interest rate you get is fixed from the start, which provides certainty on your level of return (although that’s not so great if interest rates go up elsewhere in the meantime).
There is usually a chunky minimum deposit required, so a 2 year fixed rate bond could be a good option if you have a lump sum available that you know you won’t need to get your hands on again in the immediate future.
Bonds with a 2-year term will generally pay a better rate than 18-month (or shorter) terms but a worse rate than 3-year (or longer) terms.
However, at the moment, you can actually get a matching rate (4.65%) on a 18-month term or a better rate (4.81%) on a 6-month term. If you suspect that interest rates are likely to start to come down, then you may still prefer to "lock in" for 2 years, even if it's at a lower rate.
What are the available types of 2 year fixed rate bonds?
These are two main types of fixed rate bonds:
Normal fixed rate bonds provide a fixed interest rate for the duration of the bond (in this case, 2 years).
Tracker rate bonds involve fixing the interest rate at an agreed level above the Bank of England base rate. So for example, these might offer a rate of 1% higher than the base rate until the end of the 2 year term – which technically means there’s a chance the interest rate could fluctuate if the BoE decides to change its base rate.
How to choose the best 2 year fixed rate bond
The best 2 year fixed rate bond for you will be the one that best meets your individual needs. So here are some points to consider when choosing your account:
Interest rate. This is arguably one of the top factors when selecting your bond since you want your money to earn the best interest rate possible if it is tied in for 2 years.
How interest is paid. Want to generate a monthly income by getting the interest “paid away” to another account? Most bonds support this, but not all. Some insist that the interest is left and allowed to compound.
Account opening and management. Can you easily open the account online or do you need to go into a branch? And can you then manage or view your savings online or from a mobile app if that’s what you would prefer?
Eligibility. Some providers reserve the best bond products for their existing customers (who already have a current or savings account with them, for example). If you have an eye on a particular bond, check that it’s available to new customers.
Minimum deposit. You might need a minimum deposit of up to £1,000 for the accounts with the best interest rates. So make sure you have that lump sum available and can afford not to have to withdraw it again for the 2 years.
How much money do you need to open a 2-year fixed rate bond?
Typically, there is a minimum deposit of £500 or £1,000 required to open a 2-year fixed rate bond, although there are some accounts that can be opened with as little as £50.
The maximum amount you can put into one of these bonds is usually capped at around the £250,000 mark, but some providers will potentially let you put in millions of pounds (if you’re lucky enough to have that much to spare!).
When thinking about how much money to place in your bond, remember there is tax payable on the earnings from savings interest, although everyone gets a yearly allowance before the tax liability kicks in. Basic-rate taxpayers can earn up to £1,000 in interest each year tax-free, and for higher-rate taxpayers, it’s £500.
Is your money safe in a 2-year fixed rate bond?
Funds deposited at a financial institution with a UK banking licence are protected by the Financial Services Compensation Scheme (FSCS) up to the value of £85,000. This is per person, so any joint accounts will be covered for up to £170,000.
But you must be mindful that these limits apply to each bank (or banking group), so if you have a current account and several savings accounts with one provider containing funds totalling more than £85,000, any amount over this threshold won’t be covered.
Money deposited with financial providers that don’t have a UK banking licence also won’t be covered specifically by the FSCS. Although if the provider is regulated by the FCA and is allowed to take customer deposits in this country, it must have other safeguards in place, such as ring-fencing its customers’ money in accounts held at UK banks.
What happens at the end of the 2 years?
It’s time to cash out! As the bond will have reached the end of its fixed term (or “matured”), your provider will pay you the interest you’ve earned during this time, and you can then draw out your original lump sum plus the interest. Typically, you can choose to have this paid back into your current account or into another fixed term bond if you’d like to continue saving.
Which are the best 2-year fixed-rate bonds at the moment?
Our best fixed-rate bonds are the highest interest rates available. To get the latest rates, we use Moneyfacts data, which covers nearly the full market of savings products and is checked and updated daily. We don’t include accounts from private banks.
All the fixed-rate bonds in our list have savings protection – for most, this is the Financial Services Compensation Scheme (FSCS). Other schemes include that of NS&I, which is 100% backed by HM Treasury, and the Gibraltar Deposit Guarantee Scheme.
Tandem Bank – 2 Year Fixed Saver - 4.65%
Castle Trust Bank – Fixed Rate e-Saver - 4.64%
United Trust Bank – UTB 2 Year Bond - 4.63%
SmartSave – 2 Year Fixed Rate Saver - 4.63%
Hodge Bank – 2 Year Fixed Rate Bond - 4.6%
An overview of our 2-year fixed-rate bond comparison
Rates up to
4.65% AER
Number of accounts
126
Minimum investment
£1
Maximum investment
£9,000,000
Opening options
Branch, website, mobile app, post, telephone
Pros and cons of 2 year fixed rate bonds
Pros
Good option for investing a lump sum in the medium term
Have certainty on the interest rate over the 2 years
Generally higher interest rates on offer than with easy access savings accounts
Cons
Not suitable if you think you may need to access your savings before the 2 years are up
Risk that interest rates in the wider market may go up after your interest rate is locked in
High minimum deposit usually required, often about £1,000
Interest rates have shot up over the last few years, thanks to the Bank of England raising the base rate, and that means you have lots of options when it comes to fixed-rate savings accounts. Before you open one, always check things like the minimum amount you need to deposit to open the account and also any penalties if you decide to close it within the 2 years. This will normally be a loss of interest or closure of the account but the terms differ depending on the account and the provider.”
Bottom line
As with any other type of savings account, locking money away into a 2-year fixed bonds comes with advantages and disadvantages. But the key thing to bear in mind with a fixed-rate bond of any term up to 5 years is that they can offer a better return than if you had placed your money in an easy access savings account over the same period.
So, if you have at least £500 – £1,000 in spare cash and want to save for a medium term goal, you may want to look at placing it in a 2 year fixed rate bond. Just be confident that you won’t need access to that money in the meantime, as the penalty fees for withdrawing before the end of the fixed term can be substantial.
If you’re looking at saving for a much longer time horizon, say for 10 years or more, you’re more likely to get a better return on your money by investing it. To find out more about how to choose what kind of investments may suit you, take a look at our investments guide.
Frequently asked questions
If your fixed term hasn’t ended yet, then the answer is no, not without incurring a financial penalty.
The maximum amount you can put into one of these bonds is usually capped at around the £250,000 mark, but some providers will potentially let you put in millions of pounds (if you’re lucky enough to have that much to spare!). Check the terms and conditions of any account before you apply.
Depending on your income, you have a tax-free allowance on interest. It’s called “personal savings allowance” (PSA). It’s £1,000 a year for basic 20% rate taxpayers and £500 a year for higher 40% rate taxpayers. Top 45% rate taxpayers don’t have one, so they have to pay taxes on all the interest they earn. Cash ISAs don’t count towards the allowance.
As many as you like.
We show offers we can track - that's not every product on the market...yet. Unless we've said otherwise, products are in no particular order. The terms "best", "top", "cheap" (and variations of these) aren't ratings, though we always explain what's great about a product when we highlight it. This is subject to our terms of use. When you make major financial decisions, consider getting independent financial advice. Always consider your own circumstances when you compare products so you get what's right for you. Most of the data in Finder's comparison tables has the source: Moneyfacts Group PLC. In other cases, Finder has sourced data directly from providers.
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Michelle Stevens is a deputy editor at Finder, specialising in banking, credit, loans and mortgages. She has a journalism degree from the University of Sheffield and has been a journalist for 15 years, writing on topics including fintech, payment systems and retail. In her spare time, Michelle likes to travel, explore new foodie experiences and attempt to improve her own culinary skills. See full bio
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Michelle has written 127 Finder guides across topics including:
How to get the best 1-year fixed-rate bond. Here’s what you need to know.
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