Savings bonds offer a simple way to earn a guaranteed return — but only if you can commit your money for a set term. They work best when you want certainty, not flexibility.
A savings bond is a fixed-term deposit, usually offered by banks, building societies, or government-backed providers like
NS&I.
In exchange for locking in your cash for 6 months to 5 years, you get a guaranteed interest rate that won't change — even if market rates fall.
This guide covers the key types of savings bonds, when they make sense, and how to compare them with other accounts such as easy-access, notice, and Cash ISAs.
Fixed interest rates mean you know exactly how much you'll earn over the term.
Savings bonds often pay more than easy-access or notice accounts.
Eligible UK bonds are protected up to £85,000 per person, per banking group.
Once opened, your money is usually locked until maturity.
If inflation rises faster than your fixed rate, your real return will fall.
Interest is taxable outside your Personal Savings Allowance.
1. What are savings bonds?
A savings bond is a secure savings product that locks your money away for a set term —
typically between 6 months and 5 years — in return for a guaranteed interest rate.
They are offered by banks, building societies, or government-backed providers such as
NS&I.
This guide focuses on cash-based savings bonds. If you're looking for information about investment bonds — which are stock market-linked and sold by insurers — see our
investment bonds guide.
Unlike investment bonds, savings bonds are simple cash deposits with
FSCS protection
The Financial Services Compensation Scheme protects up to £85,000 per person, per banking group.
, making them a low-risk way to earn a predictable return.
Interest rates are fixed for the full term, but access to your money is restricted.
Early withdrawals are generally not allowed and may lead to penalties or a loss of interest.
To maximise returns, only invest money you can leave untouched until maturity.
OPTIMLY INSIGHT
Investment bonds are insurance-based products linked to the stock market, which means they can rise or fall in value.
This guide focuses only on cash-based savings bonds with guaranteed returns.
If you want to learn about investment bonds, see our
investment bonds guide.
2. Types of savings bonds
Savings bonds in the UK come in several forms, each with distinct features and returns.
All provide a secure place for your money, but their rules, risks, and interest structures differ.
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Fixed-term savings bonds: - Offered by banks and building societies, these lock your money away for a set period (usually 1-5 years) at a guaranteed interest rate. Access before maturity is typically not allowed.
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NS&I fixed-term products: - Government-backed accounts such as Guaranteed Growth Bonds, which provide fixed returns with full
HM Treasury backing.
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Premium Bonds: - Instead of paying interest, your money is entered into a monthly prize draw with tax-free prizes
of up to £1,000,000. The current prize fund rate is
4% and the odds of winning any prize are
1 in 21,000.
You can hold up to £50,000.
-
Green savings bonds: - A newer NS&I product where your savings support UK environmental projects, while earning a fixed interest rate over a defined term.
Choosing the right bond depends on whether you prefer guaranteed interest (fixed-rate bonds)
or a prize-based return (Premium Bonds), and how long you can commit your funds.
OPTIMLY INSIGHT
While Premium Bonds offer the thrill of tax-free prizes, the expected annual return
(based on the prize fund rate) is currently around 4%.
A fixed-rate bond at 1% will almost always deliver a better guaranteed return.
Premium Bonds work best as a complement to fixed savings, not a replacement for guaranteed interest.
3. How savings bonds work
Savings bonds are time-locked accounts where you deposit a lump sum for a fixed period — usually 1 to 5 years —
in exchange for a guaranteed interest rate. During this time, you agree not to withdraw your money,
or you risk losing interest or facing penalties.
Interest is typically paid monthly, annually, or at maturity, depending on the product.
The rate is fixed at the time you open the bond, which means you are protected if savings rates fall,
but you will not benefit if rates rise during your term.
Premium Bonds work differently. Instead of paying interest, every £1 you hold is entered into
a monthly prize draw run by NS&I. Your capital is secure and fully government-backed,
but returns depend on winning prizes rather than earning a fixed interest rate.
Green savings bonds follow the same fixed-term principle, but your money is used to support
UK government environmental initiatives while you earn a fixed return.
4. When savings bonds are a good choice
Savings bonds work best when you have a lump sum you can set aside without needing access for a fixed period.
They offer guaranteed returns, making them a solid option when your priority is certainty rather than flexibility.
Fixed-term bonds are particularly useful if you already have an emergency fund in an easy-access account
and can commit surplus cash for 1 to 5 years. Generally, the longer the term, the higher the interest rate offered.
Premium Bonds might appeal if you prefer the excitement of tax-free prize draws over predictable interest,
though there is no guarantee of a return.
Green savings bonds are a good fit if you want your savings to support environmental projects
while still earning a fixed interest rate.
OPTIMLY INSIGHT
Instead of locking all your savings into a single term, consider splitting them across 1-year, 2-year, and 3-year bonds.
This ‘laddering' approach creates rolling maturity dates, giving you access to part of your savings each year.
Laddering helps balance higher long-term rates with the flexibility of shorter terms, reducing the risk of being stuck in a low-rate bond if rates rise.
5. Key features of savings bonds
Savings bonds offer predictable returns and are generally safer than other savings products,
but they also come with restrictions on access and term length. Here are the main features to understand:
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Fixed interest rate: - Most savings bonds guarantee the same interest rate for the full term, regardless of market changes.
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Locked funds: - Your money is tied up until maturity, and early withdrawals are rarely permitted. If allowed, they often come with penalties or a loss of interest.
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Term length: - Terms typically range from 6 months to 5 years, with longer terms often offering higher rates.
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FSCS protection: - UK savings bonds from banks and building societies are covered by the
Financial Services Compensation Scheme (FSCS) up to £85,000 per person, per banking group.
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Tax treatment: - Interest counts towards your Personal Savings Allowance (PSA), which is currently £1,000 for basic-rate taxpayers and £500 for higher-rate taxpayers (as of 2025). Premium Bonds, by contrast, pay tax-free prizes.
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No market risk: - These are cash-based products, so your returns are guaranteed if you hold the bond to maturity.
6. Pros and cons of savings bonds
Savings bonds are a safe and predictable way to grow your money, but they are not right for every saver.
Weigh these advantages and drawbacks carefully before locking in your funds.
Pros
- ✓ Guaranteed returns with fixed interest rates.
- ✓ Often pay higher rates than easy-access savings accounts.
- ✓ Protected by the FSCS up to £85,000 per person, per banking group.
- ✓ Simple and low-risk compared with stock market investments.
- ✓ Premium Bonds offer tax-free prizes instead of interest, with no risk to capital.
Cons
- ✗ Funds are locked until maturity, limiting flexibility.
- ✗ Interest may lag behind inflation, reducing your real returns.
- ✗ Early withdrawals are usually prohibited or penalised.
- ✗ Returns are generally lower than long-term investments like shares or funds.
- ✗ Premium Bond returns are not guaranteed and depend on winning prizes.
7. How to choose the right savings bond
Choosing the right savings bond means balancing interest rates, term length, and your need for flexibility.
The best option depends on how long you can lock away your money and whether guaranteed returns outweigh the value of access.
Key factors to consider include:
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Term length: - Fixed-term bonds usually range from 6 months to 5 years. Longer terms tend to pay higher rates but require you to commit funds for the full period.
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Interest rate (AER): - Compare Annual Equivalent Rates to ensure you are getting a competitive fixed return.
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Access rules: - Most savings bonds do not allow early withdrawals. If they do, expect penalties or a reduction in interest earned.
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FSCS protection: - Check that the provider is covered by the
Financial Services Compensation Scheme, which protects up to £85,000 per person, per banking group.
-
Alternatives: - Consider whether a notice account, regular saver, or Cash ISA might offer better flexibility or tax advantages.
8. Comparing savings bonds with other accounts
Savings bonds generally pay higher interest than easy-access accounts but require you to lock your money for a set term.
Notice accounts and Cash ISAs can offer a middle ground, with some access and tax advantages.
The table below shows how these products compare:
| Account Type |
Access |
Typical Rate (AER) |
Tax-free? |
| Easy-access |
Withdraw anytime |
3-5% |
No |
| Notice |
30-120 days' notice |
4-5.5% |
No |
| Fixed-term bond |
No access until maturity |
4.5-5.8% |
No |
| Cash ISA |
Depends on ISA type |
3-5% |
Yes |
| Regular saver |
Monthly deposits only |
Up to 7% |
No |
When comparing, consider not only the headline rate but also access rules, FSCS protection,
and whether you need the tax benefits of an ISA.
See our
Cash ISA guide
or
notice accounts guide
for more details on these account types.
See our top savings bond rates to compare
the latest offers and find the highest AER deals available today.
OPTIMLY INSIGHT
Savings rates change frequently, with new top deals appearing weekly.
Use our
savings comparison tool to see the latest easy-access, notice, and fixed-term bond rates in one place.
Comparing products regularly can help you avoid being stuck in an account that has become uncompetitive over time.
9. What happens at maturity?
When your savings bond reaches the end of its fixed term, it ‘matures' and you can withdraw your original deposit plus any interest earned.
Most providers will contact you before maturity to explain your options.
Common maturity options include:
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Withdraw funds: - Transfer your capital and interest to your nominated bank account with no penalty.
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Reinvest or roll over: - Some providers offer an automatic renewal into a new bond.
Be cautious, as the new interest rate may be lower than the original deal.
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Partial withdrawal: - Certain bonds allow you to take some funds while reinvesting the rest, though this is less common.
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Switching providers: - Compare current rates and consider moving your funds to a new provider offering better returns.
Always review your provider's maturity instructions. If you do nothing, your bond may default into a low-interest holding account or automatically renew at a less favourable rate.
10. Alternatives to savings bonds
Savings bonds offer security and guaranteed returns, but they are not always the best fit.
Here are some popular alternatives to consider if you need greater flexibility, higher potential returns, or tax advantages.
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Easy-access savings accounts: - Allow you to withdraw money at any time,
making them ideal for emergency funds, though rates are typically lower than bonds.
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Notice accounts: - Require you to give 30 to 180 days' notice before withdrawing funds.
They often pay better rates than easy-access accounts without the full lock-in of a fixed bond.
See our notice accounts guide.
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Cash ISAs: - Offer tax-free interest and can be structured as easy-access, notice, or fixed-term products.
They are ideal if you've used up your Personal Savings Allowance.
Read our Cash ISA guide.
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Premium Bonds: - Though technically a type of savings bond,
many savers treat them as an alternative because they pay no guaranteed interest and instead
offer tax-free prize draws with a chance to win up to £1 million.
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Investments (stocks and funds): - For longer-term goals, investing offers higher growth potential but involves risk and no guarantee of returns.
See our investment bonds guide for more.
Still unsure which option is right for you?
See our top savings bond rates or compare alternative accounts
to find the best fit for your needs.