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Best 1-Year Fixed Rate Bonds in the UK 2019

31. October 2019

Are you looking for a short-term savings plan whose returns outperform every other instant access savings accounts? Are you looking for a fixed-return savings plan whose interest out-competes inflation rates, effectively guaranteeing the integrity and value for your money?

Consider locking up your funds in a one-year fixed-rate bond that offers fixed annual incomes of up to 2%+ per annum. These accounts are designed to offer fixed rates for a fixed term implying that you will have to commit to locking up your savings for at least 12 months in exchange for the guaranteed fixed interest rate.

But the promise of fixed and guaranteed returns isn’t the only thing that makes the one-year bonds all popular. Others include the fact that most of these bonds are offered by FCA registered and regulated institutions whose deposits are protected by the Financial Services Compensation Scheme (FSCS) to a maximum of £85,000. Plus you have the chance of maximizing the returns by avoiding capital gains and income taxes charged on the returns of regular the bonds if you choose to invest your annual Individual Savings Account allowance here.

Let’s look at some of the best performing one-year bonds in the country as well as more reason you should consider saving in one.

Note: One of the one-year top fixed rate uk bonds is considered better than the easy access savings accounts due itshigher than average interest rates. However, accessing the guaranteed high returns means surrendering access to your savings by locking them up for one year and facing punitive interest loss for every premature withdrawal request.

Why would you lock up your funds in a 1-year fixed rate bond?

  • Doesn’t lock funds for longer than necessary

What happens when you land a windfall and aren’t sure what to do with the cash at the moment or just want to shield a significant portion of it from taxation? You save it in a 1-year bond while categorizing it as an ISA, as long as it doesn’t exceed your annual limit of £20,000.

  • Compounded interest through auto-reinvestment may be higher

The interest rates difference between a one-year fixed-rate bond and its two or three-year counterparts are negligible. In some cases, going for the one-year bond and auto-reinvesting the principal amount plus accrued interest upon maturity may bring in higher returns than the longer term bond.

  • Most require little minimum initial deposit amounts

You can open a fixed rate one-year bond with as little as £50 and save in excess of £1 million with most of these bonds.

  • Highly flexible

The one-year savings/investment plan is more flexible when compared to the medium and long term plans like the five- and seven-year investment options. Plus if you decided to discontinue the one-year fixed bond prematurely, the penalties will be less severe compared to the ones associated with the long term investment options.

  • Helps you avoid cash misappropriation

If you have cash at hand but aren’t sure what business to open at the moment or have other commitments that might hold you back from productive use of these funds,  you should consider locking them up in a fixed rate bond. This not only helps you avoid misappropriating this cash but also ensures that you get attractive returns from the savings.

What are the Pros and Cons of 1-year fixed rate bonds?

Pros

  • Offer a defined income stream as opposed to irregular dividends
  • They carry minimum risk as your deposits are FSCS protected
  • One-year bonds are fairly liquid
  • Discourage misappropriation of cash and can be used as a safe haven while you craft an investment option
  • They are less volatile and not affected by the money market performance

Cons

  • Penalizes premature withdrawals and account termination
  • One may consider their rate of returns relatively lower compared to such other investments as the shares and forex investments.
  • You stand to lose most of your investment should the bond service provider go under

Criteria used to rank different 1-year ISAs:

  • The annual rate of return on investment
  • The minimum initial deposit amount
  • FCA regulation and FSCS protection
  • Risk exposure
  • The regularity of interest payments
  • Ease of account opening and management
  • Support for ISA
  • Support for withdrawals and penalties associated with premature account closure

Best performing interest one-year fixed rate bonds in the country:

1. Bank of London and the Middle East (BLME) - 2.20% returns pa

At an interest rate of 2.20% interest per annum, the Bank of London and the Middle East (BLME) promises the highest returns for the one-year fixed rate deposit account. But this bond requires a minimum initial deposit of £1,000 and has its maximum operating balance capped at £1 million. It is important to note that that BLME operates under Islamic finance principles and that it is fully sharia-compliant.

The high-yield account can only be opened and managed online by any United Kingdom resident above 18 years. It also supports ISA deposits. You will however not be allowed to make additional deposits or withdraws into the account after the 7-day cooling off period when it goes live. Plus the interest here is compounded and only paid upon the maturity of the one-year bond.

Pros:

  • Relatively high interest rates
  • Quite flexible policies for a fixed rate deposit taker
  • Deposits into the account are FSCS protected
  • Sharia law compliant

Cons:

  • One may consider the account relatively rigid
  • Doesn’t support monthly interest payouts
2. Al Ryan Bank – 2.17% returns pa

Al Rayan is yet another Sharia-compliant banker offering the 12-month fixed term bond at an attractive expected profit rate of 2.17% per annum. Apart from the competitively welcoming rate of return, the Al Rayan Bank is considered one of the most versatile savings accounts. This is premised on the fact that it maintains an affordable minimum investment amount of £1,000 and unlimited upper limit for the account’s operating balance.

The fixed term bond account can also be opened and managed by anyone above 16 years online, over the phone, via the post office or at the bank’s physical branches. More importantly, you can choose to have your interest paid quarterly or compounded and paid out upon the expiry of the bond after 12 months. It, however, doesn’t support additional deposits into the account and withdrawals attract a loss of interest penalty.

Pros:

  • A highly versatile bond that allows for easy account opening and management
  • Sharia compliance reinforces the profit guarantee
  • Your deposits are FSCS protected
  • Doesn’t have a limit to the amount of money you can deposit here

Cons:

  • Relatively illiquid savings plan with penalties on withdrawals
3. Gatehouse Bank – 2.00% returns pa

Gatehouse Bank offers an interest rate of 2.00% for their one-year fixed rate bond that is currently availed to any United Kingdom resident above 18 years. The account can only be opened online but allows for easy management online, via email and over the phone.  You will need a minimum £1,000 to open the account that currently has a maximum operating limit of £85,000. You will not have easy access to your funds once the bond account goes live and any withdrawals will be penalized with the loss of 90-day interest.

The Gatehouse Bank bond is, however, one of the one-year fixed-term savings plans that allow for further deposits. The interest for the bond is nonetheless compounded and will only be paid out upon maturity of the bond. The bank also operates under the Islamic finance principles and is Sharia compliant meaning that the interest rates listed here are what you can expect upon maturity.

Pros:

  • Guaranteed fixed interest rates under Islamic laws
  • Allows for further additions into the fixed term account long after opening
  • Offers competitive interest rate on savings
  • Relatively easy account opening and management online and over the phone

Cons:

  • Low maximum account balance limit – at £85,000
4. Metro Bank – 2.00% returns pa

Metro Bank’s 1-year fixed rate bond is one of the few savings accounts with the most affordable minimum initial deposit for a fixed term bond that stands at £500. And a high maximum account limit that is currently set at £2 million. It is also one of the most versatile one-year fixed rate bond accounts as it allows for physical branch, online, and over the phone account opening and management. Plus it is open for any United Kingdom resident above 16 years. The banker doesn’t encourage additional deposits into the fixed term bond but maintains a 30-day cooling off period, during which time you can deposit as much you want.

After this, the account is locked and you cannot make a partial withdrawal before maturity. Premature withdrawals are subject to 90-day loss of interest that effectively means you stand to get back less than your initial deposit. You can nonetheless choose to have the interest paid monthly or compounded and paid at maturity.

Pros:

  • Deposits are FGSCS protected up to £85,000
  • Affordable minimum initial deposit
  • Locking in the funds minimizes misuse and misappropriation

Cons:

  • The account cannot be opened or managed via post
5. First Save– 1.95% returns pa

First Save also operates a fixed term one-year bond that has an annual interest of 1.95%. To access these highly competitive rates, however, you must commit your funds to a 12-month lock up and have a minimum £5,000 investment with the maximum account operating balance set at £2 million. The savings account can only be opened online and will only be available to United Kingdom residents above 18 years.

Additionally, you have the option of choosing to have the account paid monthly or compounded and paid t upon maturity of the bond after 12 months. There are no additional deposits allowed for the fixed rate bond,  plus any premature withdrawals will be subjected to loss of interest earned

Pros:

  • Maintains affordable minimum deposit amounts and flexible maximum operating balances
  • Straightforward online account opening and management
  • Highly credible finance service provider – FCA licensed and regulated

Cons:

  • One may consider their £5,000 minimum deposit quite prohibitive
6. Wesleyan Bank – 1.95% returns pa(available to existing customers)

Wesleyan, one of the most established financial services providers in the United Kingdom, is also offering competitive returns of 1.95% for their one-year fixed-rate bond. Some of this bond unique features include the fact that it can only be opened and managed online by any UK resident above 18 years. The bondholder must also be willing to deposit a minimum £1,000 into the account with the maximum operating balance allowed here set at £250,000.

You are also free to direct your ISA allowance for the year or transfer previous accumulations into the account. The biggest downside to the Wesleyan one-year fixed-rate bond is that it is only available to existing Wesleyan customers – individuals that have been with the financial service provider for over one year. The interest here is compounded and only paid upon the maturity of the bond after 12 months.

Pros:

  • Offered by one of the most reputable financial service providers in the country
  • Affordable minimum account operating balance
  • FCA regulated and FSCS protected deposits

Cons:

  • Withdrawals are subject to the loss of 90-day interest
7. Atom Bank – 1.93% returns pa

Atom banks one-year fixed rate bond also ranks highly on the list of the most versatile bond. This is evidenced by the fact that you can open and manage the account in an easy and straightforward online process and that you only need £50 as minimum deposit while the maximum operating balance stands at £100,000. Additionally, you have the option of choosing between monthly and annual interest payouts. The account is also open to any UK resident above 18 years. You are however not allowed to make additional deposits into the account plus any premature withdrawals result in the loss of 90-day interest.

Pros:

  • Maintains the most affordable minimum deposit
  • Deposits here are FSCS protected

Cons:

  • One may consider their £100k maximum operating balance limiting
8. ICICI Bank UK – 1.92% returns pa

ICICI Bank’s HiSAVE fixed rate one-year bond comes off as one of the most unique companies with no upper limit to the amount of money you can save here. And the minimum operating balance stands at an affordable £1,000 with the fixed rate interest set at 1.92% per annum. You have the option of having the interest paid out on a monthly basis at the rate of 1.91% per annum or compounded and paid at the end of the year upon maturity. The account can only be opened and managed online by any UK resident above 18 years with no premature withdrawal or additional deposit options.

 

Pros:

  • Competitive annual interest rates
  • Supports monthly interest payments
  • Straightforward online account opening and management process

Cons:

  • Attracts punitive penalties on premature withdrawals
9. My Community Bank – 1.90% returns pa

My Community is also floating a 12-month bond that promises guaranteed returns at the rate of 1.90% per annum. The account is open for anyone above 18 years that can afford the £1,000 minimum deposit , you have a 7-day cooling off period to fund the account after which all amounts therein are locked up for 12 months. You cannot make additional deposits and neither are premature withdrawals encouraged. You can however open and manage the account either online or via the post.

 

Pros:

  • Straightforward account opening and management
  • FCA regulated banker and FSCS protected deposits
  • Maintains relatively affordable minimum operating balances

Cons:

  • One may consider their £85,000 maximum account operating balance limiting
10. Zenith Bank – 1.90% returns pa

Zenith Bank’s 1-year fixed rate bond stands out in the industry not because of their attractive 1.90% interest rate but due to the fact that it is one of a handful fixed rate bond providers that you cannot open or manage online. You have to apply via post or call the bank. Interest earned here is compounded and will only be paid upon maturity or the termination of the bond. The termination or premature withdrawals are subject to the loss of 90-day interest and you only need £1,000 to open the account whose maximum operating balance is currently set at a flexible £2 million. After creating the bond account, Zenith Bank gives you a 7-day cooling off period during which time you can deposit as much as you want, withdraw or even close the account without any restrictions.

Pros:

  • The bond account can be sole or jointly operated
  • Guaranteed and highly competitive returns
  • Flexible and welcoming maximum account operating balance

Cons:

  • No easy access to the deposits or premature withdrawals allowed

Bottom line

One-year fixed-rate bonds promise higher returns on savings. They are a great choice for investors who are looking to avoid cash misappropriation or looking for great and rewarding saving plans as they explore the different investment opportunities. For instance, if you landed a considerable windfall or had your lifetime savings mature, you may consider investing some or this entire amount in a one year fixed rate bond that allows you to earn competitive interests while deciding on the most viable investment opportunity.  There are however a few factors that you need to put into consideration when deciding on the best one-year fixed-rate bond provider. And they go far beyond the expected rate of return to touch on such equally important factors as ease of opening and management, minimum and maximum operating balances as well as the interest payment schedules – either monthly or annually.

FAQs

What is a one-year fixed-rate bond?

This refers to a 12-months savings plan that carries with it fixed interest rate. Here you are committing to locking up your funds in a savings account for a predetermined and fixed period of time – often one year- in exchange for higher than average and guaranteed interest rates.

How do I open a one-year fixed-rate bond account?

Most bond service providers maintain relatively straightforward account opening processes either online, via post, on phone or through email. You just have to first decide on the best one-year bond service provider. And coming to this conclusion is pegged on such factors as the fixed interest rates and the maximum savings account operating balances.

How much can I deposit into a one-year fixed-rate bond?

Every fixed rate bond service provider is free to exercise their discretion when it comes to setting the minimum investment mounts allowed here as well as the maximum operating balance. From our list of the best performing one-year fixed-rate bonds, Atom Bank has the lowest minimum deposit at £50 while First Save has the highest minimum investment at £5,000. When considering the maximum deposit you will not only have to take into account the maximum operating balances allowed by the lender but also the FSCS deposit protection limits.

How much can I expect to earn from a one year fixed rate bond?

How much you make investing in a 1-year ISA is dependent on such factors as the amount of money you pool into the fund as well as the interest rate offered by your preferred bond provider. For instance, if you saved £1,000 with the Bank of London and the Middle East that pays 2.20% per annum, your account balance at the end of the term will be £1,022.00.

Can I withdraw from a one-year fixed-rate bond?

The fixed rate bond provider has the right to express their discretion in determining the management and operations policies for the bond. Some have made it practically impossible to withdraw funds from this account without closing the account. Most, however, don’t deny you access to your funds, they only discourage unnecessary withdrawals with punitive penalties that may be as high as the loss of 180-day interest on the amounts withdrawn. And if the interest earned isn’t enough to cover the penalty, the loss will be deducted from the principal amount implying that you may end up getting back less than you deposited.

How do I find the best one-year fixed rate provider?

The definition of the best fixed rate bond provider is highly subjective and dependent on such factors as your desired interest rate, cash at hand and ease of account opening and management. More importantly, ensure that your preferred bond provider is registered and regulated by the FCA and that your deposits are FSCS insured.

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Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, commodities, forex, indices, bonds, and cryptocurrency investments. She holds a Masters degree in Economics with years of experience as a banker-cum-investment analyst. She is currently the chief editor, learnbonds.com where she specializes in spotting investment opportunities in the emerging financial technology scene and coming up with practical strategies for their exploitation. She also helps her clients identify and take advantage of investment opportunities in the disruptive Fintech world.