Earn 5% on your savings - but hurry up!

Savings and ISAs

Updated on 15 July 2009 | 2 Comments

This offer of 5% interest on your savings will last just a few hours or days!

Here at lovemoney.com, we don't like five-year fixed rate savings bonds. Not right now, anyway.

Why not? Well, as Ed Bowsher explains in this Soapbox video, we think the base rate is going to rise in the next few years, and that means the rates on savings accounts are going to rise too. So it doesn't make sense to lock your money away for years now, when you're likely to be able to access a better rate in the near future.

Lots of five-year fixed rate bonds are offering around 5%, which is around 2% more than the top easy-access savings account, Alliance & Leicester's Online Saver Issue 5 (paying 3.15%), and cash ISAs.

But historically, 5% is not a great rate for a five-year bond. And we think you should not be tempted.

However, there is an exception to every rule - and today, in fact, there are two exceptions!

Two fantastic fixed-rate bonds

Newcastle Building Society has just launched two identical accounts paying 5% fixed for five years.

One is called the Five Year Bond (Issue 1) and the other is called the Five Year ISA (Issue 1).

They're both exactly the same, except that one of them is tax free: a cash ISA.

With the ISA, transfers from other providers are permitted and the minimum investment is £1. For the savings account, you must invest a minimum of £5,000 or a maximum of £500,000.

You can apply online.

There are catches, but the terms and conditions are surprisingly good for such a high rate:

The 90 day catch

Normally with fixed-term products you aren't able to get your money out early without a hefty penalty.

However, the catch on this product is limited to just 90 days. What's more, when you give 90 days notice you can withdraw your money without penalty or loss of interest. Most unusual.

So if you wanted to stick your money in this bond, and then withdraw it when savings rates started rising, you could do so. You'd just have to wait 90 days. You may think this is a small price to pay in the future, for an extra 2% interest now.

Old-fashioned saving

Whilst you can apply online, you operate this account by post. Still, you normally need to send some documents by post to prove your identity anyway. At least I find I do. (Perhaps banks just don't like what I write about them...)

Risks

There is a reasonable chance that sometime inside the next year or five we'll have massive or hyperinflation and, when we do, it'll probably happen very quickly. A 90-day notice period isn't suited to this. Therefore you may want to be ready to pull your savings out of this account at the first sign of trouble.

Keep an eye on reports from the Bank of England about inflation, particularly for signs that their quantitative-easing project is working. If we'll get any warning about rapidly increasing inflation, it'll probably be that.

This deal may last just a few more hours

The product is a limited issue, which means it's first come, first served. Unlike many products in other industries, when a bank or building society claims its savings accounts are first come, first served, they normally really are!

Newcastle Building Society's press office tells me today that it already has details of the next offering. The replacements for the above products won't be worth it in my view, because interest rates will drop to 4.55% and you'll be penalised for making early withdrawals. You'll then be better off going for the standard option of keeping your money flexible in a top, easy-access ISA or savings account.

Since the press office already has the details of the replacements it means these 5% products will be pulled imminently, i.e. within days or even hours. Indeed, the press office pretty much admitted that to me.

So if you want to earn 5% on your savings and are prepared to give 90 days' notice for any withdrawal, you might want to hurry up and apply for this account - before it's too late.

Missed out? The best online, easy-access savings account at present is Alliance & Leicester's Online Saver with 3.15%, and it may not be around for long either...

Read more about saving money:
Watch out for these savings accounts

New way to earn 1% cashback on everything

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