There is a now a five-year Fortress Bond, paying a top rate of interest. But how safe is your cash?
Castle Trust is now offering a five-year Fortress Bond paying 4% AER. The five-year bond joins the one-year bond paying 2.25% and the two-year bond paying 2.75%.
However, these bonds aren’t like the ones you get from your high street bank. So while there are greater rewards on offer, there’s greater risk – and less protection – too.
How Fortress Bonds work
Fortress Bonds are not savings accounts in a typical sense.
That’s because Castle Trust isn’t a bank, so you aren’t actually depositing cash with it. Instead your money, or at least the bulk of it, is used to fund Castle Trust’s mortgage lending business. As such, it’s really an investment rather than a savings account.
So the main risk to your money is Castle Trust no longer being solvent when your bond matures.
How safe is my money?
With a traditional savings bond, the first £85,000 you save in a single financial institution is protected by the Financial Services Compensation Scheme (FSCS).
Things are different with Fortress Bonds, as they are classed as investments. As a result only the first £50,000 that you deposit with Castle Trust enjoys the protection of the FSCS.
How does it compare?
Given that your money is not quite as protected as if you saved with a mainstream bank, are you rewarded with a market-leading rate of interest? Let’s take a look at how the Fortress Bonds match up to the other bonds available on one-, two- and five-year terms.
The top one-year and 18-month bonds
|
Bond |
AER |
Minimum deposit |
|
2.25% |
£1,000 |
|
|
2.1% |
£1,000 |
|
|
2% |
£1,000 |
|
|
Bank of London and the Middle East 18-Month Premier Deposit Account** |
2% |
£25,000 |
|
Islamic Bank of Britain 12-Month Fixed Term Deposit** |
1.9% |
£1,000 |
|
Tesco Bank Fixed Rate Saver |
1.85% |
£2,000 |
|
Post Office Online Bond |
1.81% |
£500 |
*Lower level of FSCS protection
**Anticipated profit rate
As you can see, the only rates that even come close to Castle Trust’s one-year bond require you to lock your cash up for a longer period.
Top two-year bonds
What about the two-year bonds?
|
Bond |
AER |
Minimum deposit |
|
2.75% |
£1,000 |
|
|
Secure Trust Fixed Rate Bond |
2.33% |
£1,000 |
|
Islamic Bank of Britain Fixed Term Deposit** |
2.32% |
£1,000 |
|
State Bank of India Fixed Deposit |
2.25% |
£10,000 |
|
Bank of London and the Middle East Premier Deposit Account** |
2.25% |
£25,000 |
*Lower level of FSCS protection
**Anticipated profit rate
Once again Castle Trust is the head of the pack, though it’s notable that none of the top accounts come from familiar names.
Top five-year bonds
And here are the five-year fixed rates.
|
Bond |
AER |
Minimum deposit |
|
4% |
£1,000 |
|
|
3.21% |
£1,000 |
|
|
United Bank Fixed Term Deposit |
3.20% |
£2,000 |
|
Tesco Bank Fixed Rate Saver |
3.20% |
£2,000 |
|
Shawbrook Bank Fixed Rate Bond |
3.20% |
£5,000 |
*Lower level of FSCS protection
Castle Trust again tops the table over five years, though it’s debatable whether locking your money up for such a long time is a good idea given the expectation for interest rates to start rising shortly. While 4% looks a great rate today five years is a long time – if rates start to increase quickly then it may be that locking your money up at 4% works out worse than moving between a number of short-term savings accounts over the same period.