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Best 2-Year Fixed Rate Bonds in UK 2019

31. October 2019

The United Kingdom government allows you to save and invest up to £20,000 every year and earn tax free interests/revenues thanks to the government-initiated Individual Savings Accounts (ISA) scheme. How then do you plan on spending your tax free saving/investment allocation for the year 2019/2020?

The two-year fixed rate bonds are your most ideal option if you are looking for a risk free investment or a holding cell where you can keep your capital safe while you weigh the viability of different investment opportunities.

This deposit security guarantee is derived from the fact that most of these fixed rate bond service providers are licensed and regulated by the Financial Conduct Authority (FCA) and that your deposits in any of these financial service providers is protected by the Financial Services Compensation Scheme (FSCS) to a maximum of £85,000 per investor.

Note: If you are looking for a medium-term holding cell for your money, one of the 2-year top 5 fixed rate uk bonds is the ideal option for you. It offers you reasonable interest rates without necessarily holding your money for long.

How does a 2-year fixed rate bond work?

Put simply, fixed rate bonds are saving accounts that allow you to deposit your money for a specified period of time, in this case two years. They fall under the fixed term savings/investments that lock up any of the savings held here for the specified amount of time and penalize any premature withdrawals or account termination.

You are however free to have the interest paid monthly or annually into a withdrawable checking account or compounded and paid upon maturity of the fixed rate bond.

Why save in a 2-year fixed rate bond?

  • Safe and secure

Most fixed rates bonds accounts are offered by banks and other financial institutions protected by FCSC (Financial-Service-Compensation-Scheme). This protection offers a guarantee that your money will be safe even if the bank fails, FCSC will reimburse you to maximum £85,000 (including interests) per savings account held with different banks/deposit taking institutions.  The savings is also safe from market variables such as inflation.

  • Fixed interest

Unlike other easy-access personal savings accounts, 2-year fixed rate bonds offer a pre-determined interest rate that does not change. Most easy-access rates are variable and can be changed at the bank’s discretion. With fixed rate bonds, your interest remains the same provided you see out the term.

  • Earns passive income

Besides securing your money in an inaccessible vault, fixed rate bonds earn you passive income on your savings. Simply save and forget, then come back at the end of the term to collect your money plus interest.

  • Helps avoid mismanagement or resources

The lock up of these funds for two years, the caveat and penalties on withdrawals aren’t just supposed to protect the deposit takers interests, they also go a long way in helping you avoid misappropriating this cash. The risk of losing interest or even getting back less than your deposits prevents unnecessary withdrawals that characterize the savings in a conventional checking account.

  • Risk free

Unlike most high yield investments in the forex markets or stocks, savings held in a fixed rate bond are risk free as they are not subjected to economic volatilities. The fact that they are fixed further implies that that the guaranteed interest rates won’t change, even in the most tumultuous economic markets.

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What are the Pros and Cons of 2-year fixed rate bonds?

Pros

  • Most require low minimum investments
  • Earns you passive income
  • Has higher interest rate than most other savings accounts
  • Your money is safe regardless of economic situation

Cons

  • You cannot withdraw the amount before the term expires without incurring penalties
  • Some institutions are not protected by FCSC

Criteria used to rank best 2-year fixed rate bonds:

  • Ease of account opening and managing
  • Interest rate
  • Interest paid (compounded annually vs. on maturity)
  • Withdrawal policy
  • Minimum deposit

Best 2-year fixed rate bonds

1. Bank of London and the Middle East (BLME) - 2.40% AER

Bank of London and The Middle East tops our list of popular and highly reliable financial institution in UK offering a fixed rate 2-year bond. The bond requires a minimum opening deposit of £1,000 but you are free to invest as much as £1 million.

The account also allows further additions well into the life of the bond. Plus you get to earn a fixed interest at the rate of 2.40% AER. BLME is licensed by the FCA and deposits therein protected by FSCS so your savings will be secure.  You also have the option of investing your ISA allowance here for tax free interests. You also need to link a BLME account where the interests will be paid upon maturity.

Pros:

  • Offers the highest interest rates
  • Maintains an affordable minimum investment
  • Allows further funding
  • Deposits are FSCS protected

Cons:

  • Has no introductory bonus
2. QIB UK - 2.25% AER

Qatar Islamic Bank (QIB) UK is a premium banking option that offers private banking services and a wide range of personal savings including fixed rate bonds. Their 2-year fixed rate bond carries an annual interest rate of 2.25% AER that is compounded and paid on maturity of the term bond.

You will need a minimum deposit of £1,000 to open an account here with the maximum savings allowed here capped at £85,000. You also must be 18 years of age to open a fixed rate bonds saving account with QIB UK. Like most fixed rate bond providers, QIB locks up the fixed term deposits to maturity with withdrawals being subjected to penalties. The banker is nonetheless FCA regulated and your deposits here protected by FCSC.

Pros:

  • Attractively high interest on deposits
  • The bank is protected by FCSC so your money will always be safe
  • Relatively affordable minimum opening deposit
  • Sharia laws compliant

Cons:

  • You can only invest up to £85,000
3. FCMB Bank UK - 2.22% AER

The independently incorporated subsidiary of the popular First City Monument Bank, FCMB UK offers a variety of personal banking services including fixed rate bonds. To open an account with FCMB, you are required to be 18 years and above in addition to depositing a minimum investment of £1,000.

You can deposit up to £85,000 and additional funding down the line is also allowed. Opening an account is pretty straightforward and can be done online or at the bank branches. FCMB offers annual interest rate of 2.22% for their two-year fixed rate bonds which is significantly higher than the current interest offered by most financial service providers.

Pros:

  • Affordably low minimum investment
  • Offers competitive interest rates
  • A great passive income generating stream

Cons:

  • You cannot save more than £85,000
  • Doesn’t allow for monthly interest payments
4. Axis Bank UK Ltd - 2.20% AER

Axis Bank might be a fairly new subsidiary in the UK, but it remains one of the largest lenders in India. The UK branch has some pretty amazing offers ranging from loaning services to personal accounts. You can open a fixed rate bonds account with a minimum £1,000 deposit.

There are no opening restrictions provided you fill the right information. You must be 18 years and above and can only save up to £85,000 in a single account. Axis Bank offers an annually compounded interest rate of 2.20% paid on maturity. They also offer deposit guarantee under the protection of FCSC.

Pros:

  • Highly reputable financial service provider – FCA regulated
  • Competitive interests on savings
  • Deposits are FSCS protected

Cons:

  • Deposits capped at the limiting £85,000 mark
  • You must have a separate transfer account where your money will be sent
5. Raisin bank 2-year Fixed rate bond - 2.20% AER

Raisin bank describes itself as a savings marketplace and offers a wide range of savings accounts, including a fixed term 2-year fixed rate bond that currently attracts 2.20% AER interest. Accessing the fixed rate bond service starts with opening an account online on Raisin Bank’s website for any UK resident above 18 years. Here you can a save a minimum £1,000 with the maximum capped at £85,000. And if you save more than £10,000, you qualify for the £100 welcome bonus that is credited to your savings account. There is no provision for monthly interest payment meaning that it is compounded and paid upon maturity of the bond.

Pros:

  • Straightforward online account opening and management
  • Competitive interests – well above those offered by a bank’s savings account
  • Savings above £10,000 earn you £100 welcome bonus

Cons:

  • No additional deposits or withdrawals during the life of the fixed rate bond
6. RCI Bank UK fixed rate bond – 2.11% AER

RCI Bank, one of the most reputable financial institutions in the United Kingdom also offers a competitively priced two-year fixed rate bond. The bond is open to UK residents above 18 years that can raise the minimum £1,000 required to open the account whose maximum savings amount stands at £1 million.

It is designed as a fixed term savings plan implying that you will have 30 days (cooling off period) to deposit as much as you can into the account before they are locked for the next two years with withdrawals or account termination resulting in loss of interest. Note that this account can only be opened and maintained online.

Pros:

  • Affordable minimum investment and flexible upper limit
  • Your deposits with RCI Bank are FSCS-protected up to £85,000
  • Competitive interest rates

Cons:

  • Doesn’t support monthly interest payouts
7. Paragon 2-yr fixed rate - 2.1% AER

Paragon also ranks highly on our list of high yield financial services providers for anyone looking to save in a 2-year fixed rate bond. Any UK resident above 18 years can subscribe to the 2-year bond. You must, however, raise the initial minimum deposit of £1,000 within 30 days of opening an account.

You can save up to £500,000 and your money is secured by FCSC. Paragon is among the highly recommended for UK residents and has amazing fixed rates bonds offers. Their 2-year fixed rate bond earns you 2.1% AER which is well above the interest rate offered by most local banks and financial institutions. Note that Paragon doesn’t have a provision for additional deposits after the 14-day cooling off period.

Pros:

  • Reliable and highly regulated financial services provider
  • One may consider their £500,000 upper limit on deposits flexible
  • Attractive interest rates
  • Interests can be paid either monthly and annually

Cons:

  • Premature withdrawals are subject to loss of 90-day interest
  • Income is subject to taxes
8. Aldermore two-year fixed rate bond – 2.0% AER

Aldermore is another incredible option when looking for personal savings accounts in the UK. This long serving financial institution offers fixed rates bonds to any qualifying client and has amazing interest rates. Interests are calculated daily and paid either monthly or yearly. All you need to do is deposit the minimum saving of £1,000 within 14 days of opening your account.

You can hold a maximum balance of £1,000,000 which is significantly higher than other banks. The annual gross interest is fixed at 2.00% and so is the AER with the monthly rate starting at 1.98% per annum. And while this is considered a fixed term account, you still have access to your locked funds but any withdrawal results in the forfeiture of 180 day interest for the amounts withdrawn implying that you stand to get back less than your initial deposits.

Pros:

  • Easy and convenient to set up
  • Guarantees security of deposits (protected by FCSC)
  • Attractive interest rates

Cons:

  • One may consider their 180-day interest loss for early withdrawals rather punitive
9. Investec 2-Yr Fixed Term Deposit – 1.80% AER

Investec is another reputable and reliable premium financial services provider in the UK. Opening the 2-year fixed rate bond here is relatively straightforward and open to any United Kingdom resident above 18 years. A minimum opening deposit of £25,000 is required and you can save up to £1,000,000 in the account.

It is also quite versatile as you can open and manage your account online or over the phone. The service provider offers a fixed term interest of 1.8% and no withdrawals can be made within the saving term with the option of having this accrued interest compounded to maturity or paid monthly. Your deposits with Investec are also protected by the FCSC.

Pros:

  • Convenient and easy to use
  • Attractive interest rates
  • Risk free investment that doesn’t expose your investments to unnecessary risks

Cons:

  • Requires a higher minimum opening deposit (£25,000) than most alternatives
  • Premature withdrawals are subjected to loss of 90 day interests
10. SKIPTON 2-year fixed rates bond - 1.5% AER

The Skipton Building Society 2-year fixed rates Bond is ideal for any UK resident with a lump-sum they do not want to spend or withdraw within a period of two years. This offer comes with a 1.5% fixed interest paid either monthly or compounded and paid upon maturity of the bond.

The society maintains a 7-day cooling off period during which you can deposit as much as you can into the account including transferring in your accumulated ISA savings. You will be interested to note that the fixed rate bond is open to all United Kingdom residents above 16 years that can the raise the £500 required as minimum initial deposit with the maximum allowable savings set at £1 million.

Pros:

  • Relatively straightforward account opening and process
  • Has a low minimum opening deposit of £500
  • Highly reliable and reputable investment bank
  • Accessible to 16 years olds

Cons:

  • One may consider their 1.5% interest relatively low

How to go about choosing a 2-year fixed rate bond

Although there are many banks and financial institutions offering fixed rate bonds, not all of them suit everyone. There is no single fit-for-all and your decision should be informed by your unique needs. Some of the considerations to make prior to saving with any bank include:

  • Credibility and security

As aforesaid, not all banks are protected by FCSC, so it is important to carefully review the security features. Choose credible licensed financial institutions that can guarantee your savings and interest will be paid in full no matter what happens

  • Eligibility requirements

Different banks have different requirements and policies. It is advisable to carefully read through the terms and policies before opening an account. Check the minimum age, opening deposit and requirements, penalties, early-access terms and basic eligibility factors.

  • Online presence

You need to save with a credible business with a strong online presence. Check out their online platform, design usability, customer support and any other unique features offered. Choose a user-friendly platform with sleek interface and fast-loading pages.

  • Interest rates

This is of course one of the priority determinants when choosing a fixed rate bond. Banks and lenders with higher interest rates are usually more attractive since you will be making more passive income. However, make sure the site meets all the other aspects especially security and savings guarantee. This way, your money remains intact even if the bank fails.

  • Market reputation

Credible reliable banks usually attract a positive reputation in the markets they serve. While this may be difficult to review, there are a few things you can look up to ensure the offer is legit and viable. You can gather insights from other users of the platform or even find information from reputable review sites.

Bottom line

A fixed rate bond suits anyone with a lump-sum amount they have no urgent need for. If you are sure you will not use the money for a specified period of time, then fixed rate bonds are a secure way to protect your cash while earning decent passive income in interests. The above mentioned institutions simply have some of the best offers available to those looking for 2-year fixed rate bonds in UK.When deciding on the best service provider, start by going through their terms and conditions, taking into account such factors as their premature withdrawal penalties and the regularity within which they pay the interest earned.

2-year fixed rate bonds FAQs

How much can I save?

Different banks offer different caps on the maximum amount you can save so you should carefully read the terms. Go through the fine print of the deposit takers terms and condition for a better idea on how much you can deposit into the fund.

What is the minimum deposit required?

Most banks require a minimum deposit to be paid within a specified period. Other banks allow you to make as many deposits as you want within the term while others have a deadline for deposits. Check the terms for minimum deposit required.

What do I need to be eligible for an account?

You must provide legitimate details including full names, address and telephone and/or email address. You must also meet the legal age set by the bank and pay the initial deposit required for opening a 2-year fixed rate bond saving account.

How much interest can I earn?

Interest earned depends on two main things; the interest rate offered by the bank and total savings you deposit to your account and the early withdrawal and penalties may also affect your gross income.

Is my interest taxed?

Yes, the incomes from fixed rate bond will be subjected to income gains tax for the year. You can however avoid this by only investing your annual ISA allowance or ISA funds accumulated over the years into the fixed rate bond.

What is the difference between fixed rate bond and ISA

The only difference between a fixed rate bond and an individual savings account lies in the tax treatment of the interest generated from either savings plan. The interest earned from a fixed rate bond are tax exempt to a maximum of £1,000 with anything above this subjected to income and capital gains taxes while interests from an ISA are wholly tax exempt.  You might also want to declare the gains from a fixed rate bond but you are not to declare incomes derived from an ISA.

Can I lose the money saved in a fixed rate bond

No, fixed rate bond savings accounts aren’t just provided by some of the most reputable institution in the country but they also aren’t investments. This implies that your deposits aren’t exposed to investments risks like market volatilities. And if the deposit taker went under, the FSCS promises to reimburse up to £85,000 for any investor account held with the financial service provider.

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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.