Duncan Ferris
Mary M. Flory
Business fixed rate bonds can be appealing to business owners with a lump sum they want to earn interest on. In this guide, we’ll explore what these products are, when they might be a good investment and how to choose the right business savings bond for your business.
What are business bonds?
Business savings bonds, also sometimes called fixed term business savings accounts or business savings bonds, are a way of locking away your business’s excess cash for a set period of time in order to earn interest. Different business savings bonds last for different amounts of time, varying mere months to five or even seven years.
Until the end of this period, you cannot withdraw your funds from the account. This differentiates them significantly from other forms of business savings, such as easy access or notice accounts, which make it significantly easier for businesses to withdraw money.
When the bond is nearing maturity, you will normally be notified by your provider. At this point you can opt to withdraw funds into a nominated account, or you may be able to reinvest into another savings bond or similar savings product.
Different providers offer different interest rates for fixed rate bonds. These interest rates will not change for the duration of a bond’s term, allowing your business’s savings to grow in an easily predictable way.
Fixed rate business bonds may not be the right way for your business to use its excess cash. You may also wish to consider other types of business savings accounts or business investments.
How to choose a business savings bond
When choosing a business savings bond, the most important factors to consider are likely to be the interest rate and the term of the bond.
It stands to reason that the highest interest rate will be the most attractive, as you will want your business’s savings to grow by as much as possible. Regarding the term, you should look for a bond that fits your needs and financial obligations. If you will need the money you plan on locking away in 18 months time, there is no sense in picking a 2 year bond.
There are some additional factors to consider too:
- Account opening and management: Some providers may be online only, which can be a turn-off if you prefer in-branch banking.
- Deposit limits: Different providers may have different requirements for your deposit, which may be too high or too low for the amount of money you wish to save.
- FSCS protection: The Financial Services Compensation Scheme (FSCS) pays back compensation on eligible deposits of up to £85,000 to account holders if a firm providing them with financial services fails. However, some providers, such as those based outside of the UK, may not be covered by this scheme. In addition, account holders with more than £85,000 to their name may wish to spread their funds across different providers in order to minimise risk.
Are fixed rate bonds a good investment?
Fixed-rate business bonds can be a good investment depending on your business’s circumstances. If you can leave a certain amount untouched for a set period of time, they can be an effective way to land a predictable return. They often also offer better interest rates than easy access accounts.
If you are unsure about which business savings products are right for you, consider seeking financial advice to help with your decision.
Can I withdraw from my business bonds early?
Most business savings bonds do not allow for funds to be withdrawn before the bond reaches maturity. However, some providers state that businesses may sometimes close the bond early in exceptional circumstances.
If you change your mind about a business savings bond, some providers may offer the right to cancel within 14 days of opening the account. This will allow you to receive your money back in full.
Are business savings taxed?
Business savings, including the proceeds from a matured fixed rate bond, are subject to tax. Limited companies need to pay corporation tax on interest earned, as these are part of the business’s profits. Sole traders are taxed slightly differently, but will still need to declare the interest on their self-assessment tax return.
Find out more in our business tax guide.
WARNING: This page does not constitute advice as we cannot tell you if any form of investing is right for you. Your capital can be at risk and you may get back less than you originally paid in.
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