A bunch of brilliant bonds!

Banks have been launching fixed rate bonds left, right and centre. We sort the good from the bad, and ask that all important question...how long should you fix for?

Us savers have had a bit of a dilemma lately. With derisory interest rates hitting pockets hard, many are facing the prospect of earning next-to-nothing in an instant access account or taking a punt on a longer term fixed rate bond.

There's no shortage of pundits looking into their crystal balls either, and John Fitzsimons was certainly jumping for joy at the Bank of England's recent hints that interest rates could well remain low for another year.f

Just to rub salt in the wound, LIBOR (the interest rate which banks charge each other when they borrow money for the short term)  has gradually been falling since the market seizures last October.

This is a sign that rates on savings could come down even more, as banks plunge back into the money markets and have less need for our cash.

So if you're thinking of fixing some or all of your savings, where should you put your money, and more importantly, for how long?

Short term solutions

If you've got a bit of money to lock away, but don't want to commit for too long, a six month bond may be right up your alley.

Here are the top three on offer:

In terms of the best six month savings bonds, Bank of Cyprus leads the way, paying  3.17% on balances from £1. Bank of Cyprus has launched a plethora of bonds recently, hoping to lure in our cash.

However, those left a bit chilly after the Icesave disaster will probably be asking how safe it is to leave their money with this relatively new kid on the block.

The Bank of Cyprus runs a similar scheme to some European banks such as ING, where responsibility for compensation is shared between two schemes.

So, if it were to go bust, protection would partly be provided by the Central Bank of Cyprus Deposit Protection Scheme, which covers 90% of deposits up to €20,000. Anything above this (up to £50,000) would be covered by the UK Financial Services Compensation Scheme (FSCS).

If none of these options tickle your fancy, you could always fall back onto an instant access savings account. The best at the moment is the ING Direct Savings Account, which pays 2.75% AER, including a 2.22% bonus for 12 months. Plus, you can access your money at any time, without penalty.

One year wonders

If you want to save for a bit longer, here are the top three bonds over twelve months:

ICICI tops the one year wonders, paying a competitive rate of 4%, fixed for one year, with Skipton BS not far behind, paying 3.87%.

I like these bonds, and if I was going to fix, it would be for a year. 4% is eight times the current base rate, and although I'm not as optimistic (or, some would say, deluded) as Alistair Darling to predict that everything will be hunky-dory a year from now, you'll probably be in a good postition to make your next move if you don't fix for such a long term.

Mid-way movers

Bonds which require a commitment of two years or more have been on the rise, and many providers are now keen to lock you in for the longer term. Here's the best of the two year deals:

ICICI tops the table once again, with its two year bond paying a rate of 4.35%. This is followed closely by Birmingham Midshires, which pays a slightly lesser rate of 4.25%.

But what if you want to fix for longer?

In it for the long haul...

If you thought two years was a long time in the savings world, several bonds have recently popped up to try and tie you in for an epic five years.

Here's three of the best:

Family controlled Julian Hodge Bank (which is part of the FSCS) tops the battle of the five year bonds, with three above paying 4.4%.

Depending on how you look at it, there are even better rates on offer, and if you are willing to fix for five years, you can even find rates of up to 6%.

The Leeds Fixed Rate Escalator Bond pays exactly that - but not until year five. The rates are tiered, meaning in the first year you'll earn 3.25%, rising to 3.5% in year two, 3.75% and 4% in years three and four, and finally 6% in year five.

Over the five years this averages out at 4.1% AER. When you look at it in these terms, this is not far off the rates on many two year bonds, which won't tie you in for so long.

However, it's not all bad news for the Leeds bond, and the beauty of this account is that unlike traditional fixed rate bonds, you can withdraw up to 25% of your cash at anytime without incurring a penalty.

Drawing the line

Despite these juicy rates, personally, two years is the maximum I would fix for. As bond terms get longer, the rates only get slightly better, and there's not much difference in the rates offered for two and five years.

You have to remember that the base rate is now at its lowest in the Bank of England's history, and though I don't think it will be sky-rocketing anytime soon, when it does go up, you could be stuck with an uncompetitive deal you are powerless to do anything about.

But wherever you decide to stash that cash, the important thing to remember is whether you choose instant access savings, a bond or prefer to stick with a cash or stocks and shares ISA, make sure you check the rate you're getting. That way, you'll know your savings will always be working hard for you...

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