Have you ever asked yourself: what exactly is a savings bond, and how does it differ from a savings account?
The common confusion around these two terms lies in the fact that they are so similar. In fact, a savings bond is also a type of savings account! So why call them by different names? In truth, more and more banks and building societies are calling savings bonds savings accounts in an attempt to make things simpler.
However, whatever the provider has chosen to name them, there are a few key differences between a savings bond and a normal savings account. Read on to find out what they are.
When your bond comes to the end of its term, there are a few things that can happen. Your money could be transferred to a low-paying “maturity savings account” from which you can withdraw the money; the money could be paid back into the account it originally came from, or the money can be put into another savings bond of the same length. Your provider should contact you to ask what you want to do at the end of the term, so make sure your contact details are up to date.
So, in a nutshell, a savings bond is basically a more restrictive type of savings account which, because of this restrictiveness, generally pays more interest in comparison.
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So, a savings account is typically far more accessible than a fixed rate bond, and because of that, will generally pay a lower rate of interest. They’re often variable, which means the rate can potentially change at any time, so you’ll want to regularly review your account to make sure it’s still offering the returns you want. Bear in mind too that some savings accounts come with a bonus element included in the rate that can drop away after a certain length of time (typically 12 months), which means it’s even more important to review the account at that point.
The upside is that, because your money isn’t locked away, you can typically move your funds to a better rate without penalty, unlike with a fixed rate bond where you’d be tied in for the term, even if rates elsewhere in the market started to rise. No matter which kind of account you choose – traditional or fixed bond – remember that your money is protected by the Financial Services Compensation Scheme (FSCS), and that tax treatment is the same, with the Personal Savings Allowance meaning you can earn up to £1,000 in interest each year entirely tax-free.
Disclaimer: This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.