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 October 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 1.50% 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.
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
For those looking for a longer fix, Bank of Cyprus offers 2.10% AER/gross on its 18 month 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.
Axis Bank also offers a 2 year fixed rate bond paying up to 2.20% AER, along the lines of the one year bond described above. The Axis Bank 2 year fixed rate bond pays 2.05% AER for deposits between £10,000 and £30,000, 2.10% AER for deposits between £30,000 and £50,000, or 2.20% AER for deposits between £50,000 and £200,000. Again, interest options are monthly, quarterly or at maturity, and no withdrawals are allowed.
Longer term fixed rate bonds
If you are happy to tie up your capital for longer, the 5 year fixed rate bond from Aldermore offers a rate of 3.00% AER/gross and allows you to save from £1,000, with no withdrawals permitted before the end of the 5 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)
Fixed rate bond alternatives
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 5 Year Deposit Plan which aims to provide a full repayment of capital at the end of the five year term, plus a minimum return of 25% provided that the Final FTSE 100 Index Level (subject to averaging) is higher than the Initial Index Level by any amount. If the Index rises by more than 25% the return will be 100% of the FTSE 100 growth, with no upper limit. 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.
The Mariana Capital FTSE 5 Stock Deposit Kick Out Plan is a capital protected structured deposit plan with a maximum term of 6 years which offers a potential 7.2% annual return (not compounded), dependent on the performance of five FTSE 100 listed companies. The return on offer is not guaranteed, but is dependent on the performance of five shares listed on the FTSE 100 Index, whose values are taken at the start of the plan. If all five shares are at or above these values at the end of each year (from year 2 onwards), you will receive your initial deposit plus 7.2% for each year (not compounded). If one or more of the shares are lower at the end of every year, you will not receive any growth and only a return of your 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 02/10/2014.