What is the difference between a fixed term savings account, and a fixed-term bond?

ChasingtheWelshdream

This may be a silly question, sorry!  I have been looking at savings accounts after maxing out my ISA already this year.

There are fixed interest account savings, but also fixed interest bonds, all with various deposit and withdrawal restrictions. I'm not sure what the difference is though? Is there a difference in terms of me as a simple user? If the interest rate is the interest rate, then how does a bond differ from any other savings account?

dunstonh

There are fixed interest account savings, but also fixed interest bonds, all with various deposit and withdrawal restrictions. I'm not sure what the difference is though? 

Both are marketing names on the same thing.   The generic name is fixed term deposit.   Banks will often use marketing names around that phrase.

Bond is also the most overused and often incorrectly used term in financial services.

ChasingtheWelshdream

Thank you. I couldn’t see what the difference to me as a saver would be, so I’m glad I am not being completely clueless 😆

wmb194

dunstonh said:

There are fixed interest account savings, but also fixed interest bonds, all with various deposit and withdrawal restrictions. I'm not sure what the difference is though? 

Both are marketing names on the same thing.   The generic name is fixed term deposit.   Banks will often use marketing names around that phrase.

Bond is also the most overused and often incorrectly used term in financial services.

A, “bond” is just a promise (to repay). They take on lots of different flavours.

jimjames

ChasingtheWelshdream said:

There are fixed interest account savings, but also fixed interest bonds, all with various deposit and withdrawal restrictions. I'm not sure what the difference is though? Is there a difference in terms of me as a simple user? If the interest rate is the interest rate, then how does a bond differ from any other savings account?

Just be very aware of who is offering the product. There are some scams that claim to be offering bonds but these are not FSCS protected and very likely to lose all your money. Stick to mainstream providers and you'll be ok

ChasingtheWelshdream

Thank you, I have been looking at NS&I and Principality so should be ok? 

jimjames

ChasingtheWelshdream said:

Thank you, I have been looking at NS&I and Principality so should be ok? 

Absolutely fine. It's more to be aware of any bond "opportunities" you might see advertised elsewhere online

ChasingtheWelshdream

Ah I see. No, we’re sticking with the banks that we know. Which is why I couldn’t see what the difference was between those and the fixed-term savings that our other banks offer. 

CliveOfIndia

ChasingtheWelshdream said:

Ah I see. No, we’re sticking with the banks that we know. Which is why I couldn’t see what the difference was between those and the fixed-term savings that our other banks offer. 

There's little difference as far as the likes of you and I are concerned, inasmuch as how safe your deposit is and how much return you get.  If you go with a well-known, established and regulated provider then you'll be fine.

The underlying mechanics are somewhat different.  In a standard savings account the bank will take your deposit and use it to invest - whether that's lending to other customers, buying and selling on the stock market, whatever.  They'll spread their investments so as to get the best return for themselves whilst hedging the risks of each individual investment.  But they'll guarantee the return they offer to you.  Obviously, if they offer you a return of 5% they're pretty confident they can make more than that for themselves, but there is a risk that they make less - not that it bothers you.

Strictly speaking a bond is where you lend money to a company for a specified period of time, and they agree to repay you with a specified amount of interest at the end of the term.  The riskier the investment, the higher return you can expect.  A very common one is government bonds, also known as gilts.  You lend money to the government and they repay you with interest after one year or whatever.  The returns are relatively low since the risk is very low - after all, if the UK government went bust we'd all be in a lot of trouble.  So you're guaranteed (well, near as!) to get back your capital plus interest.

Conversely, you might lend to a start-up diamond-mining company in a war-torn and mafia-riddled area of the world.  They will offer you a high rate of return because of the risk you're taking - but there's a fair chance you might lose everything you've invested.

OK, simplified and somewhat extreme examples, but that's the principle.

Albermarle

CliveOfIndia said:

ChasingtheWelshdream said:

Ah I see. No, we’re sticking with the banks that we know. Which is why I couldn’t see what the difference was between those and the fixed-term savings that our other banks offer. 

There's little difference as far as the likes of you and I are concerned, inasmuch as how safe your deposit is and how much return you get.  If you go with a well-known, established and regulated provider then you'll be fine.

The underlying mechanics are somewhat different.  In a standard savings account the bank will take your deposit and use it to invest - whether that's lending to other customers, buying and selling on the stock market, whatever.  They'll spread their investments so as to get the best return for themselves whilst hedging the risks of each individual investment.  But they'll guarantee the return they offer to you.  Obviously, if they offer you a return of 5% they're pretty confident they can make more than that for themselves, but there is a risk that they make less - not that it bothers you.

Strictly speaking a bond is where you lend money to a company for a specified period of time, and they agree to repay you with a specified amount of interest at the end of the term.  The riskier the investment, the higher return you can expect.  A very common one is government bonds, also known as gilts.  You lend money to the government and they repay you with interest after one year or whatever.  The returns are relatively low since the risk is very low - after all, if the UK government went bust we'd all be in a lot of trouble.  So you're guaranteed (well, near as!) to get back your capital plus interest.

Conversely, you might lend to a start-up diamond-mining company in a war-torn and mafia-riddled area of the world.  They will offer you a high rate of return because of the risk you're taking - but there's a fair chance you might lose everything you've invested.

OK, simplified and somewhat extreme examples, but that's the principle.

Your explanation is correct, but the issue for the OP is that the word bond is confusingly also used to describe fixed rate savings account by some providers.
It is also a favourite of scammers to offer 'bonds' with unrealistic returns. Presumably because the word 'bond' gives some kind of aura of  security .

 In a standard savings account the bank will take your deposit and use it to invest - whether that's lending to other customers, buying and selling on the stock market, whatever.  

AIUI due to the problems with banks in the financial crash of 2008, their retail operations ( offering current and savings accounts, business and personal loans etc ) are nowadays kept separate from any investment operations, like buying and selling shares.