Fixed Rate Bonds – November Roundup
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 November 2014.*
Short term fixed rate bonds
For those looking for a short term fixed rate, State Bank of India currently offers a one year fixed rate bond offering 1.80% gross/AER requiring a minimum deposit of £10,000. No withdrawals are permitted during the term of the bond.
For those wishing to save a smaller amount, Aldermore offers a 1 year fixed rate bond with a lower deposit requirement of £1,000, offering 1.75% gross/AER.
Axis Bank offers a tiered interest rate on its one year fixed rate bond – earn 1.55% AER for deposits between £10,000 and £30,000, 1.60% AER for deposits between £30,000 and £50,000, or 1.70% AER for deposits between £50,000 and £200,000. Interest on this account can be paid monthly, quarterly or at maturity, and no withdrawals are allowed during the one year term of the bond.
Medium term fixed rate bonds
Axis Bank offers a 2 year fixed rate bond paying up to 2.10% AER, along the lines of the one year bond described above. The Axis Bank 2 year fixed rate bond pays 2.00% AER for deposits between £10,000 and £30,000, 2.05% AER for deposits between £30,000 and £50,000, or 2.10% AER for deposits between £50,000 and £200,000. Again, interest options are monthly, quarterly or at maturity, and no withdrawals are allowed.
If you are looking for a 2 year fixed rate with a lower minimum deposit requirement, Aldermore’s 2 year fixed rate bond can be opened with a balance of £1,000 and offers 2.25% gross/AER, with no withdrawals permitted.
Longer term fixed rate bonds
If you are happy to tie up your capital for longer, the 4 year and 5 year fixed rate bonds from Vanquis Bank offer rates of 2.61% gross/AER and 2.80% gross/AER respectively. Both accounts allow you to save from £1,000 to £250,000 and offer monthly of annual interest options.
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)
Fixed rate bond alternatives
A structured deposit plan could offer an alternative to traditional fixed rate bonds because it offers the potential for a payout that is linked to the performance of an underlying asset such as the 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.
The Investec Kick Out Deposit Plan has a 6 year term, but offers the opportunity to mature early after years 3, 4 or 5. To achieve early maturity the average closing levels of the Index for the five business days up to and including one of the Kick-Out Dates must be higher than the Initial Index Level. If the Plan does mature early then it will return 4.75% times the number of years the Plan has been active (not compounded). For example, early maturity at the end of year 3 would return 14.25%. If the Plan runs for the full 6 year term and Final Index Level on the maturity date is higher than the Initial Index Level then you will receive a 28.5% return (6 x 4.75%) plus the return of your capital. 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 initial capital will be repaid.
Investec also currently offers a Target Income Deposit Plan which could provide a potential annual income of 4%, which is paid if the FTSE 100 finishes above 90% of its starting value. Missed payments are added to future payment next time anniversary level above 90%. The plan is capital protected, but 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.
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 21/11/2014.