Best Fixed Rate Bonds Roundup November 2013
With interest rates continuing at a record low, and with the Government’s Funding for Lending Scheme giving banks cheap money, there’s little incentive for providers to encourage savers by offering high fixed rates. However, there are alternatives to traditional fixed rate bonds, such as structured deposit plans, which could be an option for those who would normally have chosen to lock their cash away in a fixed rate bond. See below for our selection of some of the best fixed rate bonds and alternative savings plans on the market right now.
Short term fixed rate bonds
The shortest fixed rates currently offered include a 9 month fixed rate from principality paying 0.75% AER/gross requiring a minimum deposit of £5,000, and an 18 month bond paying 1.00% and requiring the same deposit. Virgin Money offers a one year fixed rate bond paying 1.75% AER/gross, which can be opened from just £1. Aldermore currently provides a selection of fixed rate deals, including a one year fixed rate bond offering 1.75% gross/AER and a two year fixed rate bond offering 2.00% AER/gross, both of which require a minimum deposit of £1,000.
Medium term fixed rate bonds
Virgin Money offers a rate of 2.20% AER/gross fixed for three years from deposits of £1 and up, while Vanquis offers a 3 year fixed rate paying 2.56% – however, this requires a deposit of at least £1,000. For those looking for a four year bond, Aldermore currently pays 2.70% on its 4 year fixed rate, with deposits starting from £1,000.
Longer term fixed rate bonds
If you are happy to tie up your capital for longer, the 5 year fixed rate bond from Vanquis Bank offers a rate of 3.10% AER/gross and allows you to save between £1,000 and £250,000, with no withdrawals permitted during the term. Virgin Money also offers a five year bond, paying 2.75% AER/gross and allowing you to save from £1 to £1,000,000.
AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. (As every advertisement for a savings product which quotes an interest rate will contain an AER, you will be able to compare more easily what return you can expect from your savings over time)
Alternative options to fixed rate bonds
A structured deposit plan is a fixed term investment with a payout that is linked to the performance of an underlying asset e.g. FTSE 100. Structured deposits are targeted at people who have a low appetite for risk in relation to their capital, but are willing to accept a return that is dependent on the stock market. While returns are not normally guaranteed in structured deposit plans, they can offer the potential for competitive rates of return when compared with the rates that are currently on offer from fixed term bonds. However the returns from fixed rate bonds are guaranteed.
Investec currently offers a Target Income Deposit Plan which could provide a potential annual income of 5.15%, which is paid if the FTSE 100 finishes above 90% of its starting value. The plan is capital protected, but returns are not guaranteed and you may only receive a return of your original capital.
The Legal & General 6 Year Growth Deposit Bond offers 150% x any FTSE 100 growth, capped at 35%. It has a low minimum deposit of £500 and is capital protected. However, returns are not guaranteed and you may only receive a return of your original capital.
These are structured deposit plans and are capital protected. There is a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In this event you may be entitled to compensation from the Financial Services Compensation Scheme (FSCS), depending on your individual circumstances. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The returns from structured deposits are not guaranteed. The past performance of the FTSE 100 Index and any companies listed on the FTSE 100 Index is not a guide to future performance.
No news, feature or comment should be seen as a personal recommendation to invest. If you are at all unsure of the suitability of this type of investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.
* Data accurate as of 04/11/2013.