Earn a top guaranteed rate on your savings

Fixed rate bond returns are starting to look better with a raft of new accounts launched this month.

If you're looking to earn a guaranteed return on your savings, there are plenty of fixed rate bonds on offer right now.  In fact, a whole clutch of brand new accounts has hit the market this month. And the good news is the rates on some of them are pretty decent too.

Many bonds are paying above 4% AER which I think is pretty reasonable in the current climate, particularly when the base rate remains stubbornly low at just 0.5%. And, given that the best return on an instant access savings account is just 2.75%, a fixed rate bond might seem like a much better bet now.

Should you choose a fixed rate bond?

A fixed rate bond will be a good choice for you if you're happy to lock your money away for a while in return for a guaranteed, fixed rate. Remember, there are normally very steep penalties for withdrawing your money early - or you may not be allowed access to your cash at all - so make sure you can commit to saving for the long term before you apply.  

Personally, if I took out a fixed-rate bond today, I would choose one which fixes a rate for the shorter term. I would only really be comfortable picking a bond which tied my money up for a maximum of one or two years.

That's because there's a risk that bonds which look competitive now may not always stay that way. Interest rates are pretty low across the board right now, but as soon as the economy begins to recover, the base rate is expected to climb rapidly.

That should boost the rates paid by a whole range of variable rate savings accounts. But this means today's fixed rate bond returns could get left behind over time. I would be concerned that the fixed return I earned on my savings might become uncompetiitive if I locked into a rate of around 4% for longer than one or two years.

So, first of all, let's take a look at some of the best bonds available over the shorter term of between one and two years. New launches are shown in italics.

Top short term fixed rate bonds (1 year) 

Top short term fixed rate bonds (2 years) 

All the bonds shown pay decent rates of at least 4.00% AER with the current market-leader, ICICI Bank UK HiSave Fixed Rate Account , offering a pretty decent return of 4.35% AER.

Thankfully, these bonds should suit a range of budgets with Birmingham Midshires and Coventry Building Society bonds requiring just £1 to get started. Meanwhile, for savers with deeper pockets, the new Abbey Fixed Rate Bond needs a hefty minimum deposit of £30,000.

Although I prefer short-term bonds, perhaps you would be satisfied with a 4% plus return on your savings for the next few years no matter what happens to the competition. In that case, you might prefer a bond which offers a guaranteed rate for a longer period.

If that sounds like you, here's a selection of the top long-term bonds over five years which offer equivalent or better rates than the short-term bonds. New launches are shown in italics.

(Note that bonds are available over three and four year terms too, but at the moment none of them offer rates which beat either the short-term or five-year selection.)

Top long term fixed rate bonds (5 years)

There's no question there are better returns to be had from long term fixed rate bonds, with the brand new best buy, Chesham Building Society, paying a top return of 4.5% AER on its Five Year Fixed Rate Bond. And, it doesn't demand a huge minimum deposit either with just £1,000 needed to open the bond.

If you like the look of these options, don't forget five years can be a long time. Getting your money out of a fixed rate bond is no easy task, so only put money away that you can really afford to do without.

Compare fixed-rate bonds at lovemoney.com

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