Here we highlight a selection of some of the current fixed rate bond deals for April 2013 – as well as some alternative ideas if you’re happy to tie up capital for 3 years or more.
1. Short term fixed rate bonds
United Bank UK are currently offering a 1 year fixed rate bond paying 2.25% Gross/AER with deposits from £2,000, while current RBS or Natwest customers have the option of a 1-year fixed rate bond paying 1.75% Gross/AER.
2. Medium term fixed rate bonds
United Bank UK offers a 3-year fixed rate bond at 2.45% Gross/AER with the option of interest paid monthly, annually or on maturity. Vanquis Bank are also offering a competitive 3 year fixed rate bond which is currently one of the best 3 year rates in the market at a rate of 2.46% Gross/AER with a minimum deposit of only £1,000.
3. Long term fixed rate bonds
If you are happy to tie up capital for 5 years, Vanquis is offering a 5 year fixed rate bond which offers a rate of 2.56% Gross/AER. The minimum deposit for this plan is £1,000 and savers can choose from monthly and annual interest options.
Click here for a selection of our best fixed rate bonds.
Alternative options to fixed rate bonds
If you are looking for alternative options to traditional fixed rate bonds, structured deposit plans may worth a closer look. A structured deposit plan is a fixed term investment with a payout that is linked to the performance of an underlying asset, such as the FTSE 100.
Structured deposit plans are appropriate for people who have a low appetite for risk but are willing to accept a return on the deposit that involves limited exposure to the stock market. While returns are not normally guaranteed in structured deposit plans they offer the potential for competitive rates of return over fixed term bonds. When interest rates are low they can offer investors relatively low risk exposure to market performance.
In a deposit plan money is held with a deposit taker such as a high street bank. Capital is at risk if the deposit taker is unable to meet its liabilities and repay investors. As with a savings account in the event of default of the deposit taker you have recourse to the Financial Services Compensation Scheme (FSCS) which currently covers an individual up to £85,000 per authorised institution.
Some of the plans currently available include:
3 year plans
Investec’s 3 Year Deposit Plan offers a fixed return of 14% if the value of the FTSE at the end of the term is higher than its starting value, subject to averaging. This plan can be opened from £3,000 and is also available for cash ISAs and transfers.
Early maturity plans
The ability to mature early is a feature which is unique to structured products. Investec’s Kick Out Deposit Plan offers a potential 4.5% per annum (not compounded), with the opportunity to mature early provided the value of the FTSE 100 at the end of each year (from year 2 onwards) is higher than its value at the start of the plan.
Since returns are not guaranteed, these savings plan alternatives may not be suitable for every saver. The right plan for you will depend on your financial objectives and attitude to risk. As with any savings product, there is always a trade off for receiving a higher rate of return and with structured deposits, this is made absolutely clear at the outset. The two main downsides are that the deposit taker may go into liquidation (as with any deposit) and that the payout mechanism within the plan does not occur so you only receive your capital back. This has to be balanced and compared to the upside which is inevitably a greater return than could be achieved by putting you money away for the same length of time with a similarly rated credit institution.