At 4%, it's the biggest rate currently on offer from a mainstream savings account, but Leeds Building Society's bond will lock up your money for a decade!
Leeds Building Society has launched a new savings bond paying 4% interest. However, there is a very significant catch: you’ll need to lock those savings up for a whopping ten years! You also need at least £10,000 in savings.
The bond from Leeds pays its interest out on a monthly basis, so it may prove attractive to those who rely on an income from their savings now. But is it worth such a long commitment?
How the Leeds bond compares
The longer you fix your savings for, the better the rate of interest you can expect. As this is the only ten-year fixed rate currently on offer (indeed, it’s been a long time since there’s even been a ten-year fixed rate savings account available), it’s comfortably the biggest mainstream savings rate you can secure at the moment, as the table below demonstrates.
|
Account |
AER |
Term |
Min/max investment |
|
Leeds BS 10-Year Fixed Rate Monthly Income Bond |
4% |
10 years |
£10,000/£1 million |
|
SecureTrust Fixed Rate Bond Seven Year Term |
3.52% |
Seven years |
£1,000/£1 million |
|
Skipton BS Online Limited Edition Seven Year Bond |
3.50% |
Seven years |
£500/£10,000 |
|
FirstSave Seven Year Fixed Rate Bond |
3.50% |
Seven years |
£1,000/£2 million |
|
SecureTrust Fixed Rate Bond Five Year Term |
3.11% |
Five years |
£1,000/£1 million |
|
3.10% |
Five years |
£1,000/£250,000 |
|
|
Shawbrook Five Year Fixed Rate |
3.10% |
Five years |
£5,000/£2 million |
|
FirstSave Five Year Fixed Rate Bond |
3.05% |
Five years |
£1,000/£2 million |
|
Tesco Bank Fixed Rate Saver |
3.05% |
Five years |
£2,000/£5 million |
|
3% |
Five years |
£1/£1 million |
With inflation now down to 2.2%, you have a few options that will offer you an inflation-beating return even after tax. Read Where to find inflation-beating savings rates for more.
But in most cases you have to make a significant sacrifice in giving up access to your cash for so long.
Is ten years too long?
There has been much debate of late about whether base rate will increase soon as a result of the improving employment figures, as we explain in What next for inflation and interest rates?
The trouble with locking your money away for any period of time is that if base rate rises, and subsequently savings rates rise too, your money may be trapped in an uncompetitive savings account and there’s nothing you can do about it.
[SPOTLIGHT]The base rate is guaranteed to increase at some point over the next decade. But exactly how it changes over such a long period of time is anyone’s guess. In 2003, when base rate sat at 3.75%, nobody would have believed that we would have such a prolonged period with a record low base rate. The housing boom was still in its infancy and sub-prime was a meaningless phrase to most of us. A huge amount can change in ten years.
Putting a large amount of cash out of reach for such a long period is a massive gamble, particularly for a rate that, while market leading at the moment, is not exactly so high that it sets the pulse racing.
Short-term fixed rate bonds
If even five years is too long to lock your cash away, what about a one- or two-year fixed rate bond? The rate won’t be as good but you will have a little more flexibility. The table below covers the five best rates available on one- and two-year bonds.
|
Account |
AER |
Term |
Min/max investment |
|
Islamic Bank of Britain Sharia Compliant Fixed Term Deposit |
2.30%* |
Two years |
£1,000/no maximum |
|
Close Brothers Select Gold |
2.30% |
Two years |
£10,000/£2 million |
|
AA Two Year Fixed Rate Savings |
2.25% |
Two years |
£1/£5 million |
|
Tesco Bank Fixed Rate Saver |
2.25% |
Two years |
£2,000/£5 million |
|
Bank of London and the Middle East Sharia Compliant Premier Deposit |
2.25%* |
Two years |
£25,000/£2 million |
|
Raphaels Bank 15 Month Fixed Rate Bond |
2.14% |
15 months |
£5,000/£250,000 |
|
GE Capital Direct 18 Month Bond |
2.05% |
18 months |
£1,000/£100,000 |
|
Tesco Bank Fixed Rate Saver |
2.05% |
18 months |
£2,000/£5 million |
|
Islamic Bank of Britain Sharia Compliant Fixed Term Deposit |
2%* |
18 months |
£1,000/no maximum |
|
Virgin Money Fixed Rate E-Bond |
1.91% |
One year |
£1/£1 million |
*Anticipated profit rate
So the rates do drop rather sharply, but at least you know that should base rate rise in the next couple of years you’ll be in a prime position to take advantage.
However, there are alternatives to fixed rate bonds that may be worth a look.
Alternatives to bonds
With rates from banks and building societies so uninspiring, many savers have started to look seriously at peer-to-peer lending. Normally if you save with a bank, it will then lend your cash out to borrowers. With peer-to-peer you lend directly to the borrower, whether it’s an individual or business. As a result of cutting out the middle man, you pocket a better return on your cash and the borrower gets a lower rate.
There are absolutely loads of different peer-to-peer lenders out there, all promising to do things in a slightly different way. So while you can lend direct to individuals in the UK with the likes of Zopa and RateSetter, with FundingCircle you lend to businesses and with TrustBuddy you lend to borrowers in seven European nations (including Norway, Span and Poland).
The rates are far more impressive. TrustBuddy for example says borrowers should expect a minimum 12% annual return, while rates from Zopa range from 4% to 4.5% for three- to five-year loans.
There is an added level of risk though. None of these sites are regulated currently (though that is coming in April next year) and your cash isn’t protected by the Financial Services Compensation Scheme, though each peer-to-peer site will have its own fund to call on should borrowers default to ensure you don’t lose out.