Fixed Rate Bond Deals Roundup – September 2013
With interest rates continuing at a low rate, locking cash away in a fixed-rate bond is no longer a guarantee of getting a good return. Fixed rate bonds can potentially offer a better return than easy access savings accounts, in return for tying up your capital for a set period. However, there are alternatives to traditional fixed rate bonds – in particular, structured deposit plans, which are worth a closer look. See below for our selection of some of the fixed rate bond deals and alternative savings plans for September 2013.
Short term fixed rate bonds
Aldermore currently provides a selection of fixed rate deals, including a one year fixed rate bond offering 1.85% gross/AER and a two year fixed rate bond offering 2.15% AER/gross, both of which require a minimum deposit of £1,000. People who bank with NatWest or RBS can take advantage of their 1 and 2 year fixed rate offers, which offer rates of 1.40% and 1.60% AER/gross in return for locking away cash for one or two years respectively.
Medium to long term fixed rate bonds
The 3 year fixed rate bond from Vanquis Bank offers a rate of 2.41% AER/gross and allows you to save between £1,000 and £250,000, with no withdrawals permitted during the term.
If you are happy to tie up your capital for longer, and have at least £1,000 to deposit, Vanquis Bank also offers a 5 year fixed rate bond with a rate of 2.76% gross/AER. You can choose from either monthly or annual interest options on this plan, and withdrawals are not permitted during the five year term.
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.
If your main goal is income, Investec currently offers a Target Income Deposit Plan which could provide a potential annual income of 5%, 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.
For those looking for growth, the Investec Deposit Growth plan offers fairly low minimum deposit of £3,000, which offers the potential to return 120% x any rise in the FTSE 100, with no upper limit. Growth in the Index is measured by comparing the Final Index Level to the Initial Index Level. If, at maturity, the Final Index Level is equal to or lower than the Initial Index Level you will not receive a return, but your original capital will be repaid.
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 06/09/2013.