Savings bonds explained

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Savings bonds are a form of investment that could help your money grow – with generally lower risk than other investment products. They can be used to try to build your savings if you can afford to tie up your money for a specific period of time.

The term of a savings bond can last between six months and five years. During this time, you’ll earn a fixed rate of interest. You can’t normally access or withdraw the money until your term is up

What are savings bonds and how do they work?

A savings bond is a form of fixed-term investment. This means that, unlike flexible-access savings, your money is locked away for an agreed amount of time. Typically, the longer you commit to leaving your savings untouched, the higher your interest rate will be.

During this set period, you cannot access the cash in your bond, but you will earn a fixed amount of interest. If you do need to access it many providers will charge penalties for early withdrawals.

Because savings bonds have a fixed interest rate, you’ll usually know how much you’ll get once your fixed period is up. This can be useful if you have a goal in mind for your savings and can help you plan towards a specific financial objective. 


Who are savings bonds for?

Savings bonds can be used by anyone with the capital to invest. Savings bonds might suit you, if you:
  • Possess a pot of savings that you can afford to lock away for a set period.
  • Have a definite savings goal and want to know you’ll be able to reach it.
  • Want to receive a potentially higher return than a regular savings account.

Choosing savings bonds

There are two main types of savings bonds – fixed-rate savings bonds and tracker bonds.

The right one for you will usually depend on your circumstances, what you want to gain from your savings and how much you’re looking to invest. 


Fixed rate savings bonds

A fixed rate savings bond provides a set interest rate over the duration of your savings bond, so you know how much you stand to gain once it matures. 

Tracker bonds

Tracker bonds track a specified index or rate of return, such as the Bank of England Base Rate, to calculate interest on your savings over the period. 

Withdrawing from a savings bond

How to cash in savings bonds

As your savings bond reaches maturity you can choose to:

  • Cash in the funds as soon as the bond matures.
  • Re-invest the money into a new savings bond.
  • Switch the money to a regular savings account from the same provider.


Cashing in a savings bond after a death

If a loved one passes away before their saving bond matures, the executor of their will is responsible for handling the money in the bond.

If held in a joint account and the other named account holder is still alive, the bond will usually continue to maturity. If in a sole name, the bond can usually be cashed in without penalty.

Withdrawal penalties

Many providers will issue charges if you choose to withdraw from your savings bond before it matures.

Make sure you understand the details of your savings bond to identify any fees and how much interest you will lose, before making any early withdrawals. Some providers will allow a limited number of withdrawals before your fixed period ends, but this is rare.

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