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What is a fixed rate bond?
A fixed rate bond is an investment account that pays a fixed rate of interest for a set term – usually between six months and five years. These investments are risk free to customers so are normally suitable for customers who have a cautious approach to investing.
Typically only one deposit is allowed at the time the account is opened so they are aimed at savers with a lump sum to invest.
Can the money be accessed during the term?
Most fixed rate bonds will not allow any access to the savings during the term, except in cases where the investor has died. However, some do allow savers to close the account early but there could be penalties involved.
What happens when it matures?
According to HSBC research, more than 5.5 million fixed rate savings products worth more than £110bn will mature this year, so what happens to the money? Some accounts automatically transfer the money into a "maturity bond" or another default account and the interest rates paid on these tend to be very low, while some accounts will repay the capital and interest immediately to the account holder or offer an alternative competitive product.
With some fixed rate products, customers nominate an account at the time of opening into which their funds are transferred when the bond matures. Others invite savers to nominate a new account when they write to remind them their bond is maturing, for example, the AA requests instructions from savers at least 14 days before the end of the account.