Earn 4.75% on your savings

Fancy getting an interest rate of 4.75% on your savings? It might sound like a high rate in the current savings environment but rates like this are on the market - you just need to know where to look.

What are bonds?

Fixed rate bonds are savings products which offer a fixed rate of interest over a defined period. At the moment, they are offering higher rates than normal savings accounts. They are best suited to savers who like to know exactly how much interest they will earn on their savings for a set period.

Most banks and savings institutions offer them and they tend to be for six-months, or one, two, three or five years.

The best rates

Generally the longer you commit to, the higher the rate you can earn on your money. At the moment Whiteaway Laidlaw Bank has a five-year bond at 4.75%, Birmingham Midshires and Saga both at 4.65%, and the AA at 4.6%.

If you only want to commit for three years, Whiteaway Laidlaw Bank has a rate of 4.26%, United National Bank at 4.25% and the Post Office at 4.21%.

Best buy two-year bonds are available up to about 4% (from the Bank of Ireland) and one-year bonds around 3.5%.

Most bonds pay the interest due to you on maturity, not monthly or even annually.

Downsides

The main downside of fixed rate bond is that you’re tying up your cash for a set period of time and you won’t be able to get to it – penalty-free at least - until that period is up.

Some bonds allow you access to the capital during the term but you’ll be subject to a penalty such as loss of interest. In some cases you may be required to close the account completely.

So it’s a good idea for savers to make sure they have a safety net of savings which is more easily accessible - otherwise breaking into a bond could see their hard-earned returns disappear.

Other restrictions include the fact that many savings bonds only allow a one-off lump sum to be invested at the start of the set period so you cannot add to the capital.

Most also have a minimum amount you have to invest. Although this can be as low as £500 in some cases, it can be as high as £5,000 for some bonds. Bonds tend to come with a maximum investment too although this is usually really high - £1,000,000 in some cases.

Another downside is that by tying your money in for a set period of time you might miss out on better rates further down the line.

At the moment the base rate is at an all-time low so savings rates are poor compared to rates available in the past. But although experts are now saying the base rate probably won’t move until next year, if interest rates go crazy and shoot up – and savings rates increase too – you might have your money stuck in an uncompetitive account.

Alternatives to fixed rate bonds

Fixed rate bonds are great if you don’t need access to your cash any time soon, but what if you do?

Instant access accounts are the obvious answer but they’re not paying much at the moment; even the current best buy from West Bromwich building society only pays 2.51%.

Internet or online accounts pay slightly more. West Brom pays 2.81% and Northern Rock 2.75%. Alternatively “introductory bonus” accounts pay about 3% but the rate drops considerably when the bonus period – normally 12 months – comes to an end so you’d need to move your money to carry on getting a decent return.

Notice accounts

If you want to earn a better rate on your savings than an instant access account offers but don’t want to be tied into a bond, a notice account could be the answer.

As the name suggests, you have to give the bank notice that you want to take your money out. This is typically 60 or 90 days.

The best rates aren’t far off those for fixed rate bonds. Whiteaway Laidlaw Bank has a 90 day notice account paying 3.3% for example.

Let us know what you think

Would you be willing to tie up your money in a bond in the current climate? Let us know what you think using the comments box below!

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