Fixed Rate or Fixed Term bonds are debt lent to banks by investors. A bank (or building society) makes it's money from the difference in the interest rate offered to savers and the rate charged to borrowers. In order to have a guaranteed amount of capital over a particular period of time, the bank offers bonds, to de-risk a run on the bank and to improve the amount of capital that they can offer to investors.
A fixed rate bond offers an interest rate which the financial institution believes will be the mid-rate over the period of the bond. The bank takes the risk, therefore, that a lower rate will prevail and the investor takes the risk that a higher rate will prevail and they would have been better off putting their cash in to instant access or notice savings accounts. Normally, the longer the term of the bond, the lower the interest rate that will be offered. Bonds form an attractive investment for those who want a guaranteed income.
Fixed rate bonds are offered by all banks and building societies with varying lengths of terms, interest rates and terms and conditions attached.
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