These new bonds pay top rates on your savings, but make sure you're aware of the risks.
Two new bonds have been launched by Castle Trust, paying a far superior rate than traditional savings bonds.
There’s a twist though, as these aren’t like the bonds you might open with your bank – the Fortress Bonds are technically an investment. And that means a different level of protection…
What do I get for my money?
There are two Fortress Bonds on offer, covering a one- or two-year term. The one-year bond pays a rate of 2.1% AER, while the two-year bond pays out 2.5% AER
You can invest anything from £1,000 up to a maximum of £250,000. You’ll have to move quickly too, as the bonds will only be available until 31st July.
Your interest will be paid to you gross at the end of your bond’s term, so you’ll need to declare it in a self-assessment tax return. However, it’s worth noting that you can invest in the Fortress Bonds as part of your annual stocks & shares ISA allowance.
Where does my money go?
As well as bonds and house-price linked tracker funds, Castle Trust offers equity loans to property owners, in order to help them release capital of cut their monthly mortgage payments.
So 80% of the money you place in a Fortress Bond will go towards funding those loans, while 20% of your money will be kept in cash.
How safe is my money?
The good news is that Castle Trust is covered by the UK Financial Services Compensation Scheme (FSCS), so there is a safety net in place if it all went wrong and the firm went bust.
The bad news is that because Castle Trust is classed as an investment firm, rather than a traditional bank, the money you save in your bond is actually classified as an investment. And that means a smaller level of payout from the FSCS.
With a traditional bank deposit, the first £85,000 you save with an institution is 100% covered. However with an investment, it’s only the first £50,000.
The best bond rates
Let’s take a look at how the Castle Trust bonds shape up compared to more traditional savings bonds.
First we’ll look at bonds with a one-year or 18-month term.
|
Bond |
Term |
AER |
Minimum deposit |
|
Islamic Bank of Britain Fixed Term Deposit* |
18 months |
2% |
£1,000 |
|
Bank of London and the Middle East Sharia’a-compliant Premier Deposit Account* |
18 months |
2% |
£25,000 |
|
Investec Fixed Term Deposit |
One year |
1.95% |
£25,000 |
|
Kent Reliance Building Society Fixed Rate Bond |
One year |
1.9% |
£1,000 |
|
Islamic Bank of Britain Fixed Term Deposit* |
One year |
1.9% |
£1,000 |
*Anticipated profit rate
And here’s how the top two-year bonds look.
|
Bond |
Term |
AER |
Minimum deposit |
|
Islamic Bank of Britain Fixed Term Deposit* |
Two years |
2.30% |
£1,000 |
|
FirstSave Fixed Rate Bond |
Two years |
2.30% |
£1,000 |
|
Investec Fixed Term Deposit |
Two years |
2.30% |
£25,000 |
|
Bank of London and the Middle East Sharia’a-compliant Premier Deposit Account* |
Two years |
2.25% |
£25,000 |
|
Kent Reliance Fixed Rate Bond |
Two years |
2.16% |
£1,000 |
*Anticipated profit rate
As you can see, if you’re happy to accept a lower level of protection with the Castle Trust Fortress Bonds, you can secure a better return on your cash than if you go with a more traditional bond. But if you are saving £50,000 to £85,000, you may feel a little safer putting your cash in one of the bonds in the tables above.