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 current fixed rate bond deals and alternative savings plans for July 2013.
Short term fixed rate bonds
If you don’t want to tie up cash for longer than a year, Aldermore’s 1 year fixed rate bond offers 1.95% gross/AER from a minimum deposit of £1,000. For those looking to lock cash away for 2 years, Aldermore also leads the pack, with a rate of 2.30% AER/gross based on a minimum deposit of £1,000. Other 2 year deals include United Banks’ 2.00% offering, requiring a £2,000 minimum deposit, and a 2 year fixed term deposit plan from Cater Allen offering 1.60% AER/gross on balances over £50,000.
Medium term fixed rate bonds
Vanquis Bank is offering a 3 year fixed rate bond at 2.26% AER/gross, requiring a minimum deposit of £1,000. United bank offers a similar rate of 2.25% AER /gross, based on a £2,000 minimum deposit. Scottish Widows, meanwhile, offers a 3 year fixed term deposit account paying 1.80% AER/gross, requiring a minimum deposit of £10,000.Long term fixed rate bonds
If you are happy to tie up capital for 5 years and have between £1,000 and £250,000 to deposit, Vanquis Bank offers a 5 year fixed rate bond with a rate of 2.56% gross/AER. You can choose from either monthly or annual interest options.
Click here for a selection of our current fixed rate bonds >>
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 deposit plans may be appropriate for people who are willing to accept a low level of stock market exposure in exchange for the potential to make better returns than those currently available via fixed rate plans. 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 in comparison to the rates currently on offer from fixed term bonds.
Investec offers a deposit growth plan with a 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.
This is a structured deposit plan and is 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 05/07/2013.