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Could a 15-month fixed-rate bond offer the best savings rate?

Uncover new savings rates by considering unusual fixed-rate deals

Could a 15-month fixed-rate bond offer the best savings rate?

As interest rates struggle to beat inflation, many people are opting for short-term bonds. But don’t restrict your search to round-numbered deals – bonds with unusual terms, like 15- or 18-months, could also offer competitive returns. 

Alternatively, one-, three-, six- and nine-month bonds could be suitable for those who don’t want to lose access to their money for a full year.

Which? looks at whether these more unusual fixed-rate bond deals offer competitive rates for your savings, and if they’re worth considering.

Fixed-rate bonds of less than two years

15-month bonds

A less common option than the 12 and 18-month bonds, you can find 15-month bonds offered by the likes of OakNorth Bank and Tesco Bank, offering an interest rate of 1.87% AER and 1.56% AER respectively.

The OakNorth Bank bond is online only, with a minimum deposit of £1,000.

Tesco Bank pays interest monthly or annually on minimum deposits of £2,000. You can open the account online or over the phone, but it can only be managed by telephone.

18-month bonds

Bank of London and The Middle East (BLME) currently offers the most competitive rate for 18-month bonds, with an expected 2% AER. However, a minimum deposit of £25,000 is required.

Not far behind, Al Rayan Bank offers an expected 1.91% AER on balances over £1,000, while MetroBank’s 18-month bond pays 1.9% on deposits over £500.

How do these compare to two-year fixed-rate bonds?

The market-leading rate for two-year fixed-rate bonds is currently 2.1% AER, offered by Ikano Bank, BLME and Secure Trust – which beats even the best 15-month and 18-month bonds.

But plenty of two-year bonds on the market, and many of them don’t beat the 18-month bonds, so it’s worth shopping around.

Tesco Bank’s two-year bond offer of 1.76% AER is only 0.2% higher than its 15-month bond rate, meaning your money won’t be earning much more despite being locked up for an additional nine months.

If you’re considering signing up to a fixed-rate bond, but aren’t sure how competitive it is, see our table below for the best rates currently available in each short-term fixed-rate bond category.

You can find out more in our guide on how to choose the best savings account.

Fixed-rate bonds of less than one year

One-month bonds

There are currently very few one-month fixed-term bonds, and most require large minimum deposit sums to open the accounts. But, they can be a good option if you have a lump sum to deposit for a short amount of time.

Danske Bank has a one-month fixed-term bond, which gives 0.1% AER for a minimum opening amount of £5,000. United Bank UK pays 0.05% AER, paid on a minimum opening amount of £2,000.

While interest rates are low, the fact that you have to pay in a sizeable amount means that you will still see a return, even after just 30 days.

Three-month bonds

For three-month bonds, Fidor Bank has the highest rate of 0.9% AER, which is paid when the bond reaches maturity.

You need a minimum of £100 to open the account, with a maximum investment of £100,000. It’s online only, and you must have or open a Fidor Smart Current Access account in order to use the bond.

Metro Bank has two options for a three-month bond. Both have 0.75% AER, with paying the interest paid monthly, and the other on maturity. Both also have a £500 minimum deposit.

Elsewhere, Clydesdale Bank and Yorkshire Bank both offer 0.45% AER on their three-month bonds, on minimum deposits of £2,000.

Six-month bonds

The highest rate is 1.26% AER, from OakNorth Bank. The online-only account must be opened with a minimum of £1,000, and interest must be compounded.

Masthaven Bank Ltd is a close second place, offering 1.25% AER on its six-month bond with a minimum deposit of £500.

Six-month bonds from MetroBank, FidorBank and Al Rayan Bank all offer 1% AER.

Nine-month bonds

Fidor Bank currently offers the highest nine-month bond rate of 1.1% AER paid on a minimum deposit of £100.

Elsewhere, Bank of Ireland is giving 0.45% AER for its nine-month bond, which must be opened in-branch with a minimum deposit of £2,000.

How do these compare with one-year fixed-rate bonds?

The best one-year fixed-rate bond rate is currently from Ikano Bank, with a fixed one-year saver account offering 1.85% AER on minimum deposits of £1,000.

While none of the shorter-term accounts can beat this rate, they do offer better rates than many others. Barclays one-year bond, for instance, offers 0.9% AER with a minimum deposit of £500 – a deal that can be beaten by the Masthaven six-month bond with the same deposit, but in half the time.

However, when it comes to choice, there are more one-year bonds to choose from – and therefore, likely to be more options of minimum and maximum deposit amounts, and more ways to manage the account.

What is a fixed-rate bond?

Fixed-rate bonds are savings accounts that require you to deposit money for a set amount of time in exchange for a pre-determined interest rate.

You won’t be able to access money paid into the account during this period – doing so will often mean incurring a penalty, which often equals most of the interest gained while the money was in the account.

For this reason, you should think carefully about whether you’re likely to need the money in one of these accounts before the term is over. If you can’t do without it, an easy-access cash Isa or savings account may be more suitable.

Generally speaking, the longer your money is locked away, the higher the rate of interest will be paid on it.

Alternatives to fixed-rate bonds

If you have a lot of money available to lock away for a fixed term, a fixed-rate bond may not be your best option.

As these are savings accounts, any money you earn in interest goes towards your personal savings allowance.

For basic-rate taxpayers in 2018-19, this allowance is £1,000. For higher-rate taxpayers it’s £500, and for additional-rate taxpayers it’s £0.

If you exceed this allowance, you will be charged tax on the money you earn through your savings.

However, if you opt for a fixed-rate Isa instead, you can pay in up to £20,000 each tax year and won’t be taxed on interest income.

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