If you can lock away your savings, there's a great rate to be had from a fixed rate bond.
There is something a little daunting about the notion of tying up your cash for a year or more without being able to get your hands on it. But if you're prepared to make the commitment, you could enjoy rates of more than 7 per cent on the savings you have squirreled away.
Abbey has just launched a one-year fixed-rate bond paying 7.01 per cent, and now joins FirstSave, IceSave and Kaupthing Edge at the top of the table in what has become a highly competitive market. Yorkshire Building Society is also set to launch a two-year bond paying 7 per cent on 14 June.
These latest additions to the "7 per cent club" are proof that while the overseas banks -- which have benefited from a low cost base -- are really making a mark in this arena, there are also some good deals to be had closer to home.
With a fixed-rate savings bond, you need to be able to afford to lock your money away for at least a year if you're going to nab the best savings rates. But with the top deals already paying two percentage points over base rate, they are just too good to ignore.
So why are these deals so attractive at the moment?
While savings rates usually come down in line with base rate reductions, the present lack of liquidity in the lending market -- in the wake of the credit crunch -- has prompted banks to find alternative ways of attracting new deposits from savers.
As a result, they are focusing on fixed rate products in order to lock in cash and limit their exposure to risk. By pushing up the rates on offer, they tempt savers through their doors, rather than the doors of their competitors.
With a selection of exceptional rates now available on a whole raft of bonds, it's time to get your cash in a fix.
Where should I stash my cash?
If you do want to lock into some of the highest rates on offer, West Bromwich Building Society is offering a tempting bond with a near-market leading rate of 7.05 per cent. Abbey is certainly a contender with rate of 7.01 per cent. Abbey claims the bond is a "bond for the high street", but this is a little bold given that the minimum investment is £30,000.
Elsewhere, for a more affordable investment of £1,000, you can get a rate of 7.01 per cent on a one-year bond with either IceSave or Kaupthing Edge, while Bradford & Bingley is paying 7 per cent on its range of one, two and three-year fixed-rate bonds.
But all these bonds still play second fiddle to FirstSave which is currently paying 7.1 per cent on its one, two and three-year bonds.
Further, if you have even less cash to hand, then you can still earn a very competitive rate of 6.8 per cent with the Anglo Irish Bank's one-year bond on a deposit of just £500.
How long will these deals stick around for?
Fixed-rate savings bonds are certainly "de rigeur" at the moment with rates at such a high level. But as these deals are coming and going faster than you can say "fixed rate savings bond", you need to act sharpish as no-one can predict how long they might last.
What are the downsides?
Before jumping headfirst into a fixed-rate savings bond, it is crucial that you know the full terms of the account. While some bonds will permit access, with most, you will be sacrificing access for the whole term of the deal.
To ensure that you don't get left in the lurch, it's important that you also have a safety net of savings which is accessible.
If not, you run the risk of having to break into a bond and seeing your hard-earned return disappear. You could then be left looking for a new home for you savings if the bond closes early.
What are the alternatives?
Fixed-rate savings bonds are ideal for those Fools sitting smugly on a pile of cash, who can afford to lock it up for a year or two. But there are plenty of other options for those who simply want to squirrel away a small sum on a regular basis.
- Your first port of call should almost always be an individual savings account (ISA) into which you can now save up to £3,600 a year tax-free.
- If you want the flexibility of being able to access your money as and when you need it, you should opt for a high-interest easy access account -- but watch out for short-term bonuses and penalties.
- And if you who want to get into the habit of putting away a set amount each month, you should consider a regular saver account. But be warned: While these accounts offer what appear to be very high annual interest rates, they do limit the amount you can deposit in any given month. So they aren't ideal if you have a lump sum to set aside.
Find the perfect account for you at The Motley Fool Savings Centre.
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