New 18-month savings tracker bond from Halifax is linked to the Bank of England base rate. So is it worth taking the gamble with your savings?
Halifax has launched a new 18-month Online Tracker Bond, currently paying 2.3% AER on deposits from £500.
If you’re lucky enough to have £50,000 or more to deposit you can get access to a slightly higher rate of 2.4% AER.
The account can be opened online but you won’t be allowed to make any withdrawals or additional deposits during the term.
And unlike a fixed rate bond the rate on the account can change.
Why can the rate change?
A savings tracker bond differs from a fixed rate bond.
Instead of a set rate of interest you get a variable one that can rise and fall each month over the term of the deal.
That’s because the interest rate on a savings tracker bond is linked to the Bank of England base rate.
The Halifax Online Tracker Bond pays a fixed amount (1.8% for those with deposits between £500 and £49,999 or 1.9% for those with deposits of £50,000 and more) above the base rate, which currently stands at just 0.5%.
So if the Bank of England Bank base rate changes, the bond’s interest rate changes as well and takes effect on the first working day of the following month.
But considering the base rate can fall as well as rise, is it worth taking this sort of gamble with your savings?
Base rate theory
The way I see it there are three different ways you can weigh up the gamble you might be taking with the Halifax Online Tracker Bond:
1. If you think the base rate will rise soon, you will lose out by locking into a paltry fixed rate now as variable rate products like the Halifax Online Tracker Bond will automatically rise with it.
2. If you think the base rate will drop further - and bizarre as it seems, it is possible - the lowest the Halifax bond can fall in response is 1.8% or 1.9% which still compares pretty favourably with many savings accounts. You can accept your loses or try to leave early to chase a better rate and incur 135 days' loss of gross interest.
3. If you think the rate will stay the same, as it has done for four years, you need to weigh up the Halifax variable rate as if it were a fixed offering – which puts the product in a strong position at the moment.
Fixed vs. tracker
According to financial information website, Moneyfacts, Halifax is currently the only provider with an 18-month savings tracker bond so by default is the market leader.
So let’s take a look at how the 2.3% AER from the Halifax Online Tracker Bond compares to what you can get on an 18-month fixed rate alternative.
|
Provider |
Account |
Interest rate AER |
Minimum deposit |
Withdrawal options |
Notes |
|
Santander* |
18-Month Fixed Rate Bond |
2.5% |
£500 |
No withdrawals |
No additional deposits allowed.
|
|
Metro Bank* |
18-Month Fixed Term Savings |
2.25% |
£500 |
No withdrawals |
No additional deposits allowed.
|
|
Islamic Bank of Britain |
Sharia'a Compliant 18-month Fixed Term Deposit |
2.25% |
£1,000 |
No withdrawals |
No additional deposits allowed.
|
|
Barclays Bank* |
18-Month Flexible Bond Issue 18 |
2.05% |
£1 |
You can make three withdrawals- each worth 10% of the initial deposit |
No additional deposits allowed. |
|
Leeds Building Society |
Fixed Rate Bond - Marie Curie Issue 3 |
2% |
£100 |
No withdrawals |
Additional funds may be invested whilst the issue remains open. |
|
Bank of Ireland UK |
Limited Edition Fixed Term Deposit Issue 53 |
1.5% |
£2,000 |
None allowed |
New money to the Institution or funds from maturing Bank of Ireland Limited Edition Fixed Term Deposits |
Source: Moneyfacts.co.uk
*Only available to existing customers
As you can see the Santander 18-Month Fixed Rate Bond is the best around paying 2.5% but you will need to be a 123 Current Account or a 123 Credit Card holder to apply.
So for new customers the best 18-month fixed rate bond available is from the Islamic Bank of Britain and pays 2.25%.
But this rate falls short of what the Halifax Online Tracker can offer now - so why lock in for less?
What else?
As well as a competitive rate Halifax also offers a bit extra to its savers.
If you take out the Halifax Online Tracker Bond and keep a total balance of £5,000 across this and any other qualifying savings accounts with the bank you can opt into the Halifax Savers Prize draw.
The draw takes place each month and gives savers the chance to win £500,000 worth of cash prizes.
Every month 1,000 savers win £100, 100 savers get £1,000 and three lucky savers bag the top prize of £100,000.
So if you choose to go for the Halifax Online Tracker Bond you can be sure it will keep you on your toes each month!
More on savings:
The top fixed-rate savings bonds