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What is the Best Fixed Rate Bond for 1 year in the UK?

Written by, Marija Petkova

Updated September, 6, 2022

If you’re thinking about opening a savings account, you might want to consider a fixed rate bond.

What is the best 1 year fixed rate bond in the UK and is it a good choice for you?

Let’s find out.

Best 1 Year Fixed Rate Bonds

We looked at different banks and the interest rates they offer for better comparison. 

In the tables below, you can find the minimum requirements for opening a fixed rate bond with different banks, how profit is made, and the length of their terms.

Best 1 year fixed rate bond with highest AER 

Bank TermAERAmount to OpenInterest PayoutInterest Paid
Al Rayan Bank18 months1.55%£5,000CompoundedQuarterly

The bank with the highest AER (annual equivalent rate) is Al Rayan Bank. The required amount to open a fixed rate bond is on the higher end, but the profit is quarterly. The bank also offers longer-term savings options.

Bank TermAERAmount to OpenInterest PayoutInterest Paid
My Community Finance12 months1.51%£1,000CompoundedAnnually

My Community Finance offers a shorter-term, has a solid AER of 1.51%, and requires only £1,000 to open. It works with a wide network of FSCS-protected credit unions and you’ll have to be a credit union member in that network to open a fixed rate bond with the bank.

Bank TermAERAmount to OpenInterest PayoutInterest Paid
Investec12 months1.40%£5,000CompoundedAnnually

Investec Bank Limited’s one year fixed rate bonds that offer high interest with a relatively smaller minimum amount requirements for opening an account. The bank has been around since 1974 and offers a range of financial products.

Bank TermAERAmount to OpenInterest PayoutProfit Paid
Hodge Bank12 months1.42%£1,000CompoundedAnnually

Unlike most banks, Hodge Bank, which is headquartered in Cardiff, offers a monthly interest payout as an alternative to the annual payout. 

Best One Year Fixed Rate Bonds with low minimum requirements

Bank TermAERAmount to OpenInterest PayoutProfit Paid
Tandem12 months1.40%no min.CompoundedAnnually

Tandem is a digital bank that doesn’t set any minimum requirements for opening a fixed rate bond. The bank also has an app with an intuitive interface that allows members to open a saving account in a matter of minutes.

Bank TermAERAmount to OpenInterest PayoutProfit Paid
HTB12 months1.48%£1CompoundedAnnually

Hampshire Trust Bank requires a minimum deposit of £1 and allows a maximum deposit of £250,000. It’s one of the top 1 year fixed rate bonds for younger people and students.  

What are Fixed Rate Bonds?

Fixed rate bonds, fixed-rate savings, or fixed-term deposits are a type of savings account that earns a guaranteed interest rate. These savings accounts are locked for a certain period, usually between 1-5 years.

In exchange for agreeing to not withdraw funds for a set period, you get a fixed rate of interest, which is often higher than what you would get from a regular savings account.

How do fixed rate bonds work?

Banks, building societies, and other financial institutions usually offer fixed rate bonds with different tiers and terms. That’s why it’s important to compare fixed rate bonds to see what works for you.

Based on the amount you want to save and the term length, the bank will calculate an AER, which is the interest rate that the account will yield at the end of the term.

Most banks offer fixed rate bonds with different pay-out options, including on a monthly, quarterly, or annual basis. You can earn fixed or compounded interest, depending on the type of fixed rate bond.

Unlike ISAs which are tax-free, fixed-rate bonds incur tax based on the owner’s Income tax band. 

Who are 1 year fixed rate bonds most suitable for?

Fixed-rate bonds are a good idea for people who:

  • Are considering a short-term investment.
  • Have enough funds to keep in a bank for 12 months.
  • Have a separate source for emergency funds.
  • Receive extra funds regularly, like commissions or bonuses.
  • Are looking for alternatives to an easy access account.
  • Want to earn higher interest with minimal risks.

How to Select the Best Fixed Rate Bonds in the UK

Here’s what to look for to get the best fixed bond rates.

  • Term – Most banks offer different term lengths that range between 1 and 5 years. Longer terms usually come with higher interest rates.
  • Interest Rate – AER tells you how much interest the savings account will earn by the end of the term. Some banks calculate interest based on the funds in the savings account. 
  • Minimum Amount – Most banks have minimum deposit requirements for fixed bond savings accounts. Consider how much you can deposit and how much you’ll save by the end of the term. The average person in the UK saved £9,633 in 2020
  • Interest Payout – Most banks pay out interest monthly, quarterly, or annually for a one year fixed rate bond.

Fixed Rate Bonds: Pros & Cons

PROSCONS
High interest rates
Guaranteed interest rates
Minimal investment risk
Multiple accounts option
Influenced by market interest rates 
Withdrawal penalties
High minimum opening amount requirements

Bottom Line

A 1 year fixed rate bond is an excellent choice for people who have some money on the side that are looking for an opportunity to earn some extra interest over a short time period. To get the best returns, it’s best to do in-depth research of what is the best 1 year fixed rate bond in the UK, whether it’s sustainable for you, and how much you’ll earn at the end of the term.

My name is Marija, and I'm a financial writer at DontDisappointMe. Although finance might not be everyone's cup of tea, my 10+ years of working in one of the biggest banks in my country, and my interest in extensive research on everything finance/investment-related, have made me somewhat of an expert in the field (if I do say so myself). No longer having the passion to work in a corporate setting, I decided that I couldn't let all of this knowledge go to waste so I started writing. And, here I am! Today I try to share my knowledge with my audience in the hopes of making this topic as simple and interesting as possible. In my leisure time, I like spending time with my family and travelling to new locations.