Traditionally, savers take out fixed-interest bonds to secure a guaranteed interest rate for their nest egg for a period of one to five years.
But more and more short-term bonds are enticing savers to lock in their bonds for just a few weeks or months.
According to James Hyde of rates watcher Moneyfactscompare, there are currently 44 fixed-rate bonds with maturities of six months or less – an increase of a quarter in just a year.
Some only last 30 days. So are they a good option for your money?
Short term: There are currently 44 fixed-rate bonds with maturities of six months or less – an increase of a quarter in just a year, some with maturities of just 30 days
Why do you want one?
Most short-term bonds are only available on savings platforms. These are websites that allow you to maintain multiple savings accounts in one place.
The platforms take care of all the administrators involved, so you only have one set of login details and minimal paperwork.
This makes it easier to switch between savings accounts more regularly and makes the idea of short-term bonds more palatable.
Short-term bond interest rates are fairly competitive. One of the best is a three-month fixed-interest bond from SmartSave via the savings platform Flagstone, which has an interest rate of 5.17 percent.
If you deposit £10,000 into this account you would earn interest of £129.24 at the end of the term.
Bank ABC has a three-month fixed price of 5.16 percent through Flagstone, followed by GB Bank at 4.99 percent for a three-month contract through savings platform Raisin.
For savers who only want to invest their money for 30 days, the top rate is 4.85 per cent with Emirates NBD through Hargreaves Lansdown, followed by GB Bank at 4.66 per cent and Sainsbury’s Bank at 4.42 per cent, both through Flagstone.
Mr Hyde says: “These options may be suitable for people saving in the short term.”
Is Easy Access the best option?
The best easy-to-access accounts (at least 18 of them offer 5 percent or more) pay interest rates similar to short-term bonds—so why should you commit to a bond?
First, the interest rate on an easy access account can drop at any time, whereas with a fixed rate bond you are locked into a rate. “Bonds could be attractive to savers looking for a higher level of security,” says Mr Hyde.
Second, fixed-rate bonds typically pay interest monthly, while some easy-access accounts pay interest annually. If you want a monthly income, the former might be a good option.
The highest-paying easy access option is Paragon Bank’s Double Access Savings Account at 5.25 percent.
However, only two withdrawals are possible every 12 months and interest is paid annually.
For a third payment, the rate drops to 1.5 percent. The highest-paying Easy Access account that pays monthly interest is from Secure Trust Bank at 5.10 percent.
“If you want to access your money in the coming months, you should think about easy-to-access accounts,” says Andrew Hagger of personal finance website Money Comms.
…or a longer-term bond?
If you can afford to lock your money away, now could be a good time to open a longer-term fixed rate bond, as interest rates are unlikely to become more generous. Economists predict interest rates have peaked and could be cut next year.
The maximum interest rate for a one-year contract is 6.03 percent at the Sharia-compliant bank Habib Bank Zurich.