Fixed rate savings bonds are investments that offer a guaranteed fixed interest rate for the term of the investment, which is typically 1, 2 or 5 years. Interest is paid net of savings tax at 20%. The terms of the bond will state how money may be deposited, i.e. whether deposits can be made as a lump sum and/or on a regular basis.

You are required to keep your money invested for the full term of the bond in order to benefit from the higher interest rates offered. Withdrawals are not permitted.

Savings bonds offer tiered interest rates, so the more you invest the higher the rate of interest earned. Savings Bonds offer growth, whilst protecting your capital. Your returns are not dependant on fluctuating interest rates, only by the period of the savings bond, with higher interest rates being offered for longer investment periods.

The fixed rate of interest therfore offers security for those prefering a low risk investment, and makes planning your personal finances a little easier.

Savings bonds are also available where a higher rate of interest is offered, but the decision as to whether the interest is paid is subject to the performance of the stockmarket. You should check the conditions of such savings bonds as they will vary.

The advantage of opting for this form of saving over investing directly in the stock market is that you remove the risk of losing any of your capital. So, no matter how badly the stockmarket performs over the term of your savings bond, you are guaranteed to get your initial capital back.