Term / Bond Accounts

Term accounts or savings bonds could be the right savings accounts for your money if you're prepared to tie up a lump sum for any period between three months and 10 years. However, there are few products available at these extremes of the term accounts market-place. You will have more choice among bonds with a fixed term of one or two years.

What you get with savings bonds and term accounts, is a fixed rate of interest for the life or term of the bond. There's usually a maximum and a minimum stipulated investment so you won't be able to add to the capital invested without purchasing a different bond which may have a different rate of interest.

If you're looking for a guaranteed income with low risk and you are prepared to put a capital sum of money beyond your reach then savings bonds and term accounts could provide the answer you're looking for. You may choose between accounts that pay interest annually or monthly.

If savings bonds are offering high interest rates, it may be because the issuer is expecting rates to rise over the term, whereas if term accounts rates are low it may be because the company is expecting interest rates to fall.

Very few term accounts allow you to make a partial withdrawal of your funds. It is more common to be required to cash in the account entirely and if you do so before the end of the term you will lose interest and you may be subject to a further penalty as well.

Last Updated: April 2008 © Moneyextra.com

Our senior editor Robin Amlôt recommends you should consider taking independent financial advice before acting on any article. Please contact us for help with your individual circumstances if any assistance is required.