New savings provider RCI Bank has launched a table-topping account.
RCI Bank, which launched in the UK in June, has continued its assault on the savings market with the launch of a two-year bond paying 2.35% AER. It’s also offering a one-year fixed rate bond at 2.06%
RCI’s account beats the alternative two-year bonds on offer. The next best deal is offered by Paragon Bank which offers a two-year rate of 2.34%.
Should you stash your savings with RCI?
What’s on offer from RCI Bank?
RCI’s bonds require a minimum of £1,000 to open the account and savers can then top up the account over the next 30 days – but after that, no more. The maximum balance is £1 million.
RCI accounts are opened online and run either on the internet or over the phone – there are no branches. You can choose whether you want your interest to be paid monthly or annually.
RCI also offers an easy access Freedom Savings Account paying 1.65% AER gross variable for new and existing customers, with a minimum investment of £100. It's also a market-leading offer.
Who is RCI Bank?
RCI Bank has only been operating in the UK since June. It’s French and part of RCI Banque, car firm Renault’s global banking group.
RCI Banque has offered car finance with Renault, Nissan, Dacia and Infiniti in the UK for the past 20 years. It offers savings accounts to customers in the UK, France, Germany and Austria and plans to launch more products over the next 12 months for UK consumers.
RCI Bank says it has a dedicated UK-based customer service team and call centre open seven days a week.
Is your money safe?
RCI Bank savers’ money is not covered by the Financial Services Compensation Scheme (FSCS) which covers the first £85,000 of savings per person should a bank go bust.
[SPOTLIGHT]Instead it’s authorised and regulated by the French regulators and savers are protected under the French guarantee scheme, Fonds de Garantie des Dépôts et de Résolution (FGDR), up to the value of €100,000 (about £71,277).
If you have a savings balance around this figure, or you’re planning to grow your savings to this level, bear in mind it’s almost £14,000 less than the protection you receive if you put your money in a bank that is protected by the FSCS, until the end of the year when that cap is reduced to £70,000.
Also, the limit could reduce if the euro continues to weaken against the pound.
Are fixed rate bonds a good idea?
The main advantage of fixed rate bonds is obviously the higher rates on offer compared to easy access accounts. There’s also the discipline factor – if your money’s locked away for a number of years you won’t be tempted (or able) to spend it.
Before the financial crach, fixed rate bonds also protected savers against falls in interest rates. It may seem hard to believe, but before the credit crunch you could lock your money away at 7% AER. Savers that did so were laughing all the way to the bank when rates subsequently fell.
But times have changed. With interest rates remaining at 0.5%, and the next move being upwards, there are no potential rate falls to protect yourself against.
When will interest rates rise?
The Bank of England Base Rate has remained at 0.5% since March 2009 with experts constantly predicting when it will rise. The strongest sign yet that a rate hike could be on the way came from Bank of England governor Mark Carney who recently warned the first rise may come as early as the turn of the year.
A higher Base Rate should, in theory, mean providers start to offer better savings rates. The heady days of 7% are unlikely to return any time soon, but there’s a chance that by next year could see rates that make 2.35% seem a bit stingy.
But nothing’s certain and interest rate rise predictions have been wrong several times in the past six years.
Disadvantages of fixed rate bonds
Missing out on a better interest rate later on isn’t the only downside of fixed rate accounts – there’s also the fact that you can’t get to your cash in an emergency, at least not without a significant penalty such as loss of interest.
For this reason, bonds are only suitable for savers with instant access to cash elsewhere.
Another downside is that unlike instant access savings accounts, many savings bonds only allow a one-off lump sum to be invested at the start of the set period, so you can’t add to the capital.
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