Why Fixed Rate Bonds Rule The Savings Account Roost

Financial instruments come in all shapes and sizes and choosing the right place to entrust your money can be a mystifying task. However, with a little bit of knowledge, anyone can become an investor and many individuals are turning towards fixed rate bonds as their preferred option when browsing high interest savings.

Here are a few of the reasons for the rise in popularity of fixed rate bonds:

Simple to Understand

Dissecting the term, 'fixed rate' refers to the interest you'll earn on your savings, which is predetermined and set in stone. The 'bond' part refers to the duration of your agreement with the issuer. Your savings are bound, glued and fastened in place which means you're unable to get to them (without incurring significant penalty charges) until the bond becomes unstuck.

In short, they're ideal for people with spare money who can afford to lock savings away for a set period of time and want a guaranteed return.

Pick 'n' Mix Options

While the options are simple, that doesn't mean they're limited. You can choose whether you want to add funds regularly to your bond or to pay a single lump sum up-front. Some savings accounts pay interest cumulatively whilst some only pay on the initial investment.

Some provide tiered interest rates dependent on how much you put in your account, tempting you to find a few extra pennies in the coffers that will allow you take advantage of the improved tariff. You could opt to open a joint account with your partner or to go it alone, and of course there are many ways you can keep up to date on progress such as online or by good old post.

There's no set rule saying which is the best set of options and all come with pros and cons; it's up to you to decide which most suits your saving needs.

Competitive Returns

Rates for fixed term bonds are generally better than the rates you'll find with instant access savings accounts as your lender can be pretty sure that you're not going to come knocking and ask for your investment back before the end of your set term.

Investment companies like offering these options to businesses and personal savers as they give them a guaranteed pot with which to play the markets. At the end of your agreement, they have to hand back your money along with the previously agreed interest, regardless of how well they have performed. They generally trust themselves to pull a profit in the long-game, hence the higher proceeds for you.

Security for Your Savings

Fixed rate bonds are just as popular with investment novices as they are with more experienced experts, partly due to their reputation as stable option. Whatever happens in the wider economic climate to interest rates, you'll have a clear indication of exactly how much you'll earn on your savings.

There's no such thing as 100% absolute security in the world of investments, but as risks go, the bond option is a relatively safe bet.

The Future of Bonds

The performance of bonds is often seen as an indicator and precursor for the rest of the market, so it pays to keep a close eye on high yield fixed rate bonds, even if you're not immediately planning to invest.

As more people opt to place their money within bonds, the number of companies offering the option will increase helping to improve the rates available. However we've all learned our lesson about making any solid predictions on the future of finance, so the best advice is to do your research and trust your judgement about when it's the right time to invest.

Logan Bell has most of his savings tucked safely away in a Fixed rate bonds, which he plans to spend on fine food in rustic pubs once it matures.