While top fixed rate deals might be thin on the ground at the moment, 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 in March 2014.*
Short term fixed rate bonds
For those looking for a short term fixed rate with a low deposit requirement, Aldermore currently offers a one year fixed rate bond offering 1.60% gross/AER requiring a minimum deposit of £1,000. No withdrawals are permitted during the term of the bond.
For a shorter fixed rate deal, Principality offers the option of a 9 month fixed rate bond or an 18 month fixed rate bond, with the former paying 0.75% AER/gross and the latter paying 1% AER/gross. Both of these fixed rate bonds require a minimum deposit of £5,000, and no additional deposits or withdrawals are permitted during the term of the plans.
For those with a larger lump sum to deposit, Cater Allen offers a 1.30% AER/gross rate on its 1 year fixed rate bond to customers with an initial deposit of £50,000 or over, guaranteed by Santander. Withdrawals are not permitted during the fixed term.
Medium term fixed rate bonds
For those looking for a longer fix, Bank of Cyprus offers 2.35% AER/gross on its 3 year fixed term deposit, requiring a minimum balance of £1,000, up to a maximum of £1m. Interest is paid annually and the account is available on a single or joint basis.
Meanwhile, for those looking for monthly interest, Vanquis Bank offers a 2.16% AER/gross interest rate that is fixed for three years on balances between £1,000 and £250,000. This account allows you to choose whether you want to receive your interest on a monthly or annual basis.
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 3.16% AER/gross and allows you to save between £1,000 and £250,000, with the option of receiving your interest annually or monthly.
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. For those who are looking to use their cash ISA allowance before the end of the tax year, many structured deposit plans are also available for cash ISAs and cash ISA transfers.
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 3 Year Deposit Plan which could offer a maximum potential return of 12% gross after 3 years. The objective of the Plan is to provide a full repayment of capital at the end of the three year term, plus a defined return of 12% provided that the Final Index Level (subject to averaging) is higher than 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.
For those who are prepared to lock their money away for 6 years, the Societe Generale UK Super Tracker Deposit Plan could offer a return of 4.15% x any growth in the FTSE 100 Index, capped at 41.5% of your initial investment. 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.
Tax treatment of ISAs depends on individual circumstances and may be subject to change in the future.
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 03/03/2014.
