What is a fixed term bond?

A fixed term bond - also know as a fixed rate bond - can either be an investment product or a savings product, and it's critical that potential savers and investors understand the difference between the two. The current rates for a fixed term or fixed rate savings bond are typically between 1% and 2% per annum, while a fixed term investment bond may offer target rates of between 4% and 8% per annum. 

 

While fixed term investment bonds and fixed term (or fixed rate) savings bonds have a couple of similarities, they are very different products, with different risks and benefits. 

Unlike with fixed term/rate savings bonds, returns offered by fixed term investment bonds are not guaranteed. 

Because of their medium/high risk profile - along with their status as an investment product, meaning your capital is at risk and returns are not guaranteed -fixed term investment bonds are generally better suited to more experienced investors who can be categorised as;

  • sophisticated investors
  • high-net-worth individuals
  • professional investors

On the other hand, fixed term/rate savings bonds - which are a savings product, not an investment product - are open to anyone over the age of 18.

Fixed term/rate savings bonds are protected by the Financial Services Compensation Scheme (FSCS) up to the value of £85,000, however their downside is that rates are typically 2% or lower per annum. This means that, whilst their returns are guaranteed, the rates on offer are generally lower than the rate of inflation, meaning the value of savings is eroded over time.

 

Can fixed term bonds and fixed rate bonds be held in an ISA?

Yes, certain fixed rate savings bonds are ISA eligible. They would be classed as a fixed rate Cash ISA. You can compare the best fixed rate Cash ISAs here.

The same goes for certain investment bonds - ISA eligible fixed term bonds are available through the Innovative Finance ISA. You can compare typical IFISA fixed term bonds here.

The main benefit of holding either via an ISA is that the returns are tax free.

 


 

MAVEN Bonds are a specialist provider of IFISA eligible fixed term bonds aimed at helping experienced investors generate a higher return on their investments.

With a volatile stock market and returns from traditional savings products at an all time low, many experienced investors are turning to alternative investments.

The potential for higher returns is attractive, particularly if they are tax free via the IFISA. However, it's essential that potential investors have a clear understanding of the risks and benefits of the products on offer.

To find out more, download our free IFISA guide.