If you have savings that you can lock away for several years, fixed rate bonds may be suitable for you, in the current low-interest-rate climate.
Fixed rate bonds are guaranteed investments that offer relatively good returns by the end of their term, but carry heavy penalties for those wishing to withdraw their money early. Interest is paid monthly or annually into the bond.
Some of the best deals this week are Skipton Building Society’s 5-year bond offering 5.35% gross, Yorkshire Building Society’s 5-year bond at 5.30% and the 5-year bonds from Barclays and the Halifax, which both offer 5.25%.
Among these, the Yorkshire’s bond stands out with a low minimum investment of just £100, compared with the £500 minimum for the others mentioned.
But with low interest rates, the only way is up - and many savers may feel reluctant to tie up their cash for a full five years, at the present time.
For them, the medium term fixed rate bond market may be the perfect compromise, with a few good 3-year deals now on offer.
ICICI Bank UK is currently offering 4.7% in its 3-year bond, albeit with a high minimum deposit of £1,000, compared to the SAGA 3-year fixed-rate bond offering 4.65% with a minimum investment of just £1.
Furthermore, there is a risk in tying your money up in a bond. If interest rates do begin to rise, bonds could be overtaken and other savings alternatives could become more attractive again. These opportunities would bypass savers who have locked their cash up in a bond.
