It pays a top rate of 4% but will lock up your cash for a decade!
Leeds Building Society has launched a new fixed rate savings bond paying 4%.
It’s a market-leading rate, but you’ll have to agree to lock your cash away for ten years to benefit.
You’ll also need a minimum of £10,000 to open and operate an account, with the option to invest up to £1,000,000 while the issue remains open.
Any money you put in will be tied up for the entire length of the term, as this bond doesn’t allow withdrawals until maturity.
However, interest is paid monthly to a separate account, so it could be a good option for those on fixed incomes like pensioners who may rely on generating extra cash from their savings.
The monthly return on a £50,000 investment would be £167 a month before tax - a substantial boost. In total the account would earn £20,000 over the term of the deal. That’s a 40% return over ten years.
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How it compares
In general the longer you are willing to lock up your savings for, the better the rate of interest on your savings.
Below are the market-leading rates across a range of long-term fixed rate saving accounts.
|
Account |
Gross AER |
Term |
Minimum deposit |
|
Leeds BS 10-Year Fixed Rate Monthly Income Bond |
4.07%* |
Ten years |
£10,000 |
|
First Save Seven-Year Fixed Rate Bond |
3.50% |
Seven years |
£1,000 |
|
3.50% |
Five years |
£50,000 |
|
|
3.25% |
Five years |
£1,000 |
|
|
3.25% |
Four years |
£50,000 |
|
|
3.00% |
Three years |
£50,000 |
|
|
2.91% |
Four years |
£1,000 |
|
|
Shawbrook Bank Three-Year Fixed Rate bond Issue 20 |
2.75% |
Three years |
£5,000 |
*Gross AER is 4.07% but account does not offer compound interest so the actual interest you earn is 4%.
At the moment Leeds BS is the only provider to offer a ten-year deal and it comfortably offers the best return on cash compared to other long-term fixed rate bonds around at the moment.
But you’ll have to be willing and able to sacrifice access to your cash for a significant period of time.
Should you fix for a decade?
The base rate has been at a record low of 0.5% for over five years now, which has helped borrowing remain cheap but kept saving rates in the doldrums.
However, there’s been strong indications from the Bank of England and the Monetary Policy Committee (which decide where the rate should sit each month) that it will slowly start to creep up from next year.
Read What next for inflation and interest rates? for more.
As the base rate starts to rise, saving rates are sure to follow. So while the Leeds BS ten-year fix looks attractive now, it's a gamble as you may find yourself trapped on an uncompetitive rate a couple of years down the line, unable to move your pot onto a better deal.
You should also consider whether you can afford to put such a large amount of cash out of reach for such a long period. A lot can happen in ten years and your circumstances are likely to change.
That said the first issue of the Leeds ten-year bond last November was pulled just four weeks after it launched because of the high level of demand. Kim Rebecchi, Leeds Building Society’s Sales and Marketing Director said it expects a similar level of interest this time round so savers will need to act quickly.
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Alternatives to long-term fixed rate bonds
If you don't want to lock your money up for quite so long you could go for a short-term fixed rate bond instead.
Kent Reliance Building Society offers the top one-year rate at 2.01% and the best two-year rate at 2.30%.
Alternatively the Castle Trust Fortress Bonds offer returns of 2.1% over one year or 2.5% over two years, but as these are classed as investments you get a smaller level of protection from the Financial Services Compensation Scheme.
Or you could try peer-to-peer lending. Normally if you save with a bank, it will lend your cash out to borrowers. With a peer-to-peer platform you get to do it yourself. So because there’s no middle man both sides tend to get a better return.
RateSetter is offering a return of 2.5% on a one-month term, 3.8% on a one-year term, 4.9% on a three-year term and 6.3% on lending over five years. Lending Works is offering 3% over one year, 4.1% over three years and 5.4% over five years, while Zopa is offering 4% over three years or 5.2% over five years.
However, this type of investment doesn’t come with FSCS protection so your investment is at risk if a borrower defaults. That said each platform usually has its own fund that can protect lenders.
Read Peer-to-peer: What return will you get on your money? for more.
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More on savings:
The best fixed rate savings accounts