How do they work?
They are savings accounts which offer a fixed interest rate for a set term, generally from one to five years.
They often pay higher rates than easy-access savings accounts. However, the trade-off is you cannot usually access your money.
What rates do they pay?
The rates available are the highest they have been for a year. The average of the top five one-year bonds is now 3.44 per cent, compared with 2.95 per cent a year ago. One-, two- and three-year ISA bond rates have also hit the highest levels since March 2010, with the average rate on a two-year account jumping by 0.32 points.
Where are the best deals?
Over one year, the current market-leader is Barnsley Building Society's Online Bond, which pays 3.5 per cent on £1,000 or more.
If you are happy to lock your cash away for two years and are yet to use your ISA allowance, Chelsea Building Society has a fixed-rate e-ISA paying 3.7 per cent over two years on £100 and above.
How do they compare with easy-access accounts?
The average of the top five easy-access savings accounts is 3.02 per cent, but the headline rates on all the top deals include bonuses – meaning you should switch after 12 months. Coventry Building Society's market-leading Poppy Online Saver pays 3.1 per cent. However, that includes a 12-month bonus of 1.1 per cent.
Are there alternatives?
If you believe inflation will stay high, another option is an index-linked bond.
The Post Office has two – lasting three and five years. The first pays the annual increase in the Retail Prices Index (RPI) – currently 5.3 per cent – plus 0.5 per cent, while the longer-term account pays the RPI increase plus 1.5 per cent. National Savings & Investments has a five-year Index-linked Savings Certificate paying RPI plus 0.5 per cent – and returns are tax-free.Reuse content