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This guide has a range of tips to help you get started and maintain your emergency savings fund.
The most important consideration when taking out a four-year fixed rate bond is that you are as certain as you can be that you will not need access to those funds within the time period of the bond. When investing in this type of product, you are essentially promising that you will not withdraw or close the account until the bond matures. In return, the bank is guaranteeing that they will pay the fixed interest rate advertised for the whole four years.
In return for not withdrawing funds, the bank is offering you a better interest rate than shorter-term alternatives. Consequently, there are heavy restrictions on early access and penalties for withdrawals. In many instances, withdrawals may be forbidden or may lead to your account being automatically closed – even if you do not wish to withdraw all your funds. A few four year fixed rate bonds may allow very restricted early access, but it is likely that this will be penalised by a significant – perhaps even an entire – loss of interest.
In all cases, it will be important that you can reasonably commit to not touching your funds for the full duration of the bond. If this could be a challenge, consider a three year fixed rate bond or a two year fixed rate bond.
Comfortable with not being able to access your monies over a long term? Consider five year fixed rate bonds for the possibility of an even higher rate of interest.
A trend in the fixed rate bond market is for the best rates to be offered by smaller, relatively unknown banks. These are referred to as challenger banks, however, you should not any have any concerns that your money is any less safe with one of these institutions than with one of the bigger, high street brands. All banks and building societies listed by Moneyfacts.co.uk are part of the Financial Services Compensation Scheme (or an EU equivalent). As such, the first £85,0000 you have saved is fully protected should the bank or building society fail.