Current High Paying 1 & 2 Year Fixed Bonds
February 2007
With the recent rises in UK interest rates many banks and building societies are up to their usual sneaky money grabbing tricks, one of them being not passing on these rises to their savers.
This strategy usually results in easy profits because the majority of savers won’t realise or if they do, don’t want to change accounts for the sake of say an account paying 0.25% higher.
No Games Possible With Fixed Saving Bonds
But with Fixed income saving bonds these games can’t easily be played. This is because if the bonds aren’t competitive when they’re sold the take-up won’t be good. This is why switched on savers are advised to keep an eye on this area of the savings market because really good deals are often promoted.
Here are some recent offerings –
Skipton Building Society
- Have just introduced a new range of bonds called ‘Pick ‘n’ Fix’
- These include a 1, 2 and 3 year bond
- Interest on all the bonds is 5.96% gross per annum
- Or, for those that want a monthly income they pay 5.76% gross
- Minimum investment is £500 maximum £50,000
- Only one bond is allowed per customer
- Money locked up for the duration of the bond so no withdrawals allowed
- More details on the Skipton website
Leeds Building Society
- Just launched a 3 year bond paying 6% gross for yearly payment or 5.85% if you choose the monthly income option
- Minimum deposit is £100 maximum £1million
- Savers can make one withdrawal of up to 25% of the initial capital at anytime up until the bond expires in March 2010. No further withdrawals are then allowed
- More details on the Leeds website
Which Option To Choose - Annual Interest or Monthly
Annual interest on a savings bond (or any other savings account for that matter) will always pay a slightly higher interest rate, usually around 10-25 basis points (1% = 100 basis points) than those paying monthly interest.
Choosing the annual rate is better unless you need or want a monthly income off your capital. A monthly income means that the initial capital stays invested in the bond but the interest is paid out to you in the form of income.
The choice therefore depends on your financial circumstances and whether you like/need an income.
Conclusion
Fixed income bonds are good for cash rich savers because they can afford to lock their money up for longer periods of time. But they should play only a part in an overall savings strategy.
For example, if Mr A had £100,000 in cash depositing a maximum of £50,000 in fixed income bonds would seem prudent while the other £50,000 remains in instant or easier access accounts.
Also, it’s often a good idea to mix the duration of fixed bonds up so of the £50,000 example, having £15k in both 2 and 3 year bonds while £20k goes into a 1 year bond.
But if you have a much smaller amount of cash savings then it’s usually better to keep it as flexible as possible and go with a good instant access account. Right now the IceSave account is the pick of the best - read more about it in this article.
See Also
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