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Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme up to a maximum level of protection of £85,000 per business per institution. The deposits of most businesses are covered up to the £85,000 limit, but businesses should check with their bank before they apply as there are exclusions.

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A guide to business bonds

nigel woollsey

Nigel Woollsey

Online Writer

At a glance

  • Fixed rate business bonds normally pay higher levels of interest than standard business savings accounts.
  • Typically, withdrawals will not be allowed (or at least be very limited) during the term of the bond. If you do withdraw any cash you are likely to be penalised in terms of loss of interest or even closure of the account.
  • There may be qualifying conditions or minimum levels of deposit required.

Business bonds explained

Business bonds are more suited to business owners looking to set aside a lump sum for a fixed amount of time, but the advantage of this commitment is that interest rates tend to be higher on fixed rate business bonds than their variable rate (and more accessible) counterparts. It’s important that you make a note of the bond maturity date, as if you forget to give instructions to your bank or building society ahead of time the funds will generally be transferred to a lower-paying variable rate account.

Should I lock my money away?

This depends on your business needs, but a good rule of thumb is probably to split your savings between easy access and fixed rate accounts. The benefit of locking your money away is that you'll get more interest, and generally speaking, the longer the term, the higher the rate.

This means you have the potential to get a substantial return from your surplus cash by the end of the term, but just bear in mind that fixed rate accounts typically won't allow access prior to maturity (and if they do, there could be a hefty penalty), so you'll need to be confident that you won't need access to your money for the duration of the deal.

This is why you'll want to keep at least a portion of your savings in a more accessible account, to ensure you can withdraw funds easily should you need them. These accounts will typically be variable rate, which means they could change at any time, but there are still some competitive deals available – particularly if you don't mind giving a bit of notice to access your funds.

Then there's the potential to lock your money away for only a very short period of time – this could still give you a better return than an easy access account, but you can be safe in the knowledge that you don't have to lose access for long. Some providers will offer fixed rate bonds with terms as short as three or six months, which could be the ideal compromise for some businesses.

Depositor protection for businesses

Money held in a business bond may fall under the protection of the Financial Services Compensation Scheme (FSCS).

Whether a business is eligible for protection under the compensation scheme is not straightforward (even the FSCS’s site can’t give a definitive answer!), but generally the deposits of non-financial businesses will be covered.

The FSCS protects the first £85,000 an eligible business has held under a single UK banking licence.

You can read more about this protection in our depositor protection scheme - business and charities guide.

Moneyfacts tip

Moneyfacts tip nigel woollsey

If you suspect you may need access to your funds it may be better to choose a business deposit account with easy access – the interest you earn may be a bit less but you won’t incur any penalties if you do need to withdraw funds during the term.

Best Business Bonds

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