Best 3 year fixed-rate bonds up to 4.62% (2024)

Compare 3-year fixed-rate bonds

Table: sorted by interest rate, promoted deals first

Here’s what you need to consider if you’re thinking about locking your money away in a 3 year fixed rate bond, including the pros and cons and how to choose the one that suits you best.

What are 3 year fixed rate bonds?

Fixed-rate bonds are a type of savings account that allow you to lock away your money for a set time – in this case 3 years. You won’t be able to add to these funds or withdraw from them during this period. In fact, many banks on release the funds before maturity if the account holder dies or goes bankrupt, and any early withdrawals would be highly likely to involve forfeiting interest or paying a fee.

In return for entrusting your lump sum to the bank for 3 years, you’ll usually get a higher rate of interest compared to an easy access account (which allows you to withdraw funds whenever you need them). Plus, the interest rate is guaranteed not to change for the duration of the bond.

Bonds with a 3-year term will generally pay a better rate than 2-year (or shorter) terms but a worse rate than 4-year (or longer) terms.

However, at the moment, you can actually get a better rate (5.21% vs 4.62%) on a 6-month term. If you suspect that interest rates are likely to start to come down, then you may still prefer to "lock in" for 3 years, even if it's at a lower rate.

Locking your money away for a longer period can also be risky if interest rates are likely to rise in the foreseeable future. If this happens, your money could end up being tied up in an account that is no longer competitive and you won’t be able to switch to a better paying account without being heavily penalised.

What are the available types of fixed-rate bonds?

When comparing 3 year fixed rate bonds you’ll come across a variety of different features and eligibility criteria. This can include:

• Minimum deposit. The minimum amount you’ll need to open a 3 year fixed rate bond tends to vary between £1,000 and £5,000. Some providers may require a higher deposit, while a few may allow you to open an account with just £500.
• Account management. OK, there’s not a lot of account management to do with a fixed-rate bond… but it can be nice to see your savings growing in an app, perhaps alongside your other accounts.
• Interest payments. You may be given the option to have your interest paid monthly or on the anniversary of the bond. If you syphon off the interest, then it won’t get a chance to compound, and at the end of the bond your pot will likely be worth less due to inflation.
• Existing customers only. Some banks only offer certain bonds to those who already have a current or savings account with them.
• Top-up payments. Check whether your account allows you to add to your deposit within the first few weeks of opening your account, or whether you can only pay in one lump sum at the start.

How to find the best 3-year fixed-rate bonds

The only real factor you need to consider when choosing the best 3-year fixed-rate bond is the interest rate on offer.

You can find the best-paying 3-year fixed-rate bonds using any price comparison website, like this one!

There are other differences, including customer service and terms regarding the early withdrawal of your funds, but for most savers, these pale in comparison to the interest rate on offer.

How much money do you need to open a 3 year fixed rate bond?

You’ll typically need a minimum deposit of between £1,000 and £5,000 to open a 3-year fixed rate bond. However, some accounts will allow you to open them with as little as £500.

The maximum deposit is typically around £250,000, but some providers will allow you to save a few million (if you’re lucky enough to have it).

Be sure to check how long you have to pay in your deposit – this could be anywhere between 14 and 30 days after opening your account. Check whether you can top up your funds too.

Which are better: 3-year fixed-rate bonds or 3-year fixed-rate ISAs?

These two savings mechanisms are actually pretty similar, but with a couple of noteworthy differences.

Both restrict you from withdrawing your money early. However, bonds are a private contract where you agree to lend money to a third party for a set period, and as such, funds generally can’t be accessed before maturity except in the event of death, bankruptcy or at the bank’s discretion. Cash ISAs, meanwhile, are savings accounts with government-defined parameters, and the bank is legally obliged to grant you access to your funds at your request… but is allowed to charge a penalty if you do so.

With ISAs, you have an annual limit (it’s £20,000 in the 2023/2024 tax year). With fixed-rate bonds, there may be a maximum savings amount applied by the savings provider, but it’s typically much higher.

You also won’t pay tax on savings interest earned within an ISA. This is less of a big deal since the introduction of the personal savings allowance, under which basic-rate taxpayers can earn £1,000 of tax-free savings interest per year, and higher rate tax-payers can earn £500.

Interest rates tend to be higher on 3-year fixed-rate bonds than on 3-year fixed-rate ISAs, but this isn’t a hard and fast rule, so it’s worth checking!

Is your money safe in a 3 year fixed rate bond?

If you deposit money with a financial institution that has a UK banking licence, the first £85,000 will be protected under the Financial Services Compensation Scheme (FSCS) should your bank go bust. Joint accounts will be covered up to £170,000.

Limits apply per institution which means if you have accounts with two banks under the same banking group, such as NatWest and RBS, the total cover will only be £85,000 across both accounts.

What happens at the end of the 3 years?

At the end of the 3-year period, your account will “mature” and your provider should pay you the interest you’re owed. You’ll then typically be able to have the money transferred to your current account. Or you can renew your account with the same provider – usually by choosing a different deal at a different rate of interest.

Are 3-year fixed rate bonds a good investment?

Yes, with a couple of caveats! Fixed-rate bonds are a type of cash savings account so stick to FSCS-covered banks and building societies there’s no risk to your capital. However, if you choose a longer term bond, which will generally have a higher rate of interest, you run the risk of interest rates going up while your money is locked away at that fixed rate. This means your money could be tied into an account that’s no longer competitive. Conversely, of course, if interest rates come down, yours won’t and you’ll be sitting pretty.

It’s a good idea to keep at least some rainy-day savings in an easy-access account, rather than locking everything away.

For longer-term saving and investing, it’s not a bad idea to consider investing some of your pot in stocks and shares. This comes with a risk that you’ll lose money, but also a chance to beat inflation.

Which are the best 3-year fixed-rate bonds at the moment?

Our best fixed-rate bonds are the highest interest rates available. To get the latest rates, we use Moneyfacts data, which covers nearly the full market of savings products and is checked and updated daily. We don’t include accounts from private banks.

All the fixed-rate bonds in our list have savings protection – for most, this is the Financial Services Compensation Scheme (FSCS). Other schemes include that of NS&I, which is 100% backed by HM Treasury, and the Gibraltar Deposit Guarantee Scheme.

• Investec Bank plc – 3-Year Fixed Rate Saver - 4.62%
• SmartSave – 3 Year Fixed Rate Saver - 4.61%
• DF Capital – 3 Year Fixed Rate Deposit (Issue 7) - 4.6%
• Atom Bank – 3 Year Fixed Saver - 4.6%
• Hampshire Trust Bank – 3 Year Bond (Issue 63) - 4.6%

An overview of our 3-year fixed-rate bond comparison

Pros and cons of fixed-rate bonds

Bottom line

If you can afford to lock away a lump sum for five years, and you have funds in another account you can access in an emergency, a fixed rate bond can be a good place to put your money. Interest rates are often more competitive than other savings options and you’ll have the security that if interest rates drop, your savings rate won’t.

A 3-year fixed rate bond can be a good vehicle for part of your savings/investments pot.

Frequently asked questions

• It’s providers that sign up to the FSCS scheme, not products. However, you will find that most fixed-rate bonds offered by UK providers will be covered by the FSCS.

• Bonds are among the safest places to put your savings. There is a small risk of the borrower defaulting, but most savings providers offer safeguards against this.

• You can have as many as you want. You may only be able to open a certain number with one particular provider, but you can always open more with another bank.

• Fixed rate bonds will only be taxable if the amount of interest you earn exceeds your personal savings allowance. Basic-rate taxpayers can earn up to £1,000 in interest each year tax-free, while higher-rate taxpayers can earn £500.

• If you have a lump sum that you can afford to lock away for a fixed time, a 3 year bond could be right for you. Providing you have other savings you could access in an emergency and you’re happy with the interest rate on offer, a 3 year fixed rate bond could be a good way to help your savings grow.