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Is it worth taking out a 5 year fixed rate bond?

Is it worth taking out a 5 year fixed rate bond?

Category: Savings

Updated: 05/05/2017
First Published: 09/12/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The words rock and hard place spring to mind when describing the plight of UK savers at the moment.

Every month people are coming to the end of decent 4 or 5 year fixed rate bonds that were taken out when interest rates were substantially higher.

Those savers are discovering the harsh savings reality of 2011:

  • Low interest rates
  • High inflation
  • Uncertainty

The choice you're left with is less than ideal. Either wait and see – take a short term hit in the expectation that things will improve in the next year or two. Or, take a long term savings product, such as a 5 year fixed rate bond, and risk being locked into an uncompetitive rate later.

5 year fixed rate bonds – the right place to put your money?

The best fixed savings accounts have some distinct advantages:

  • You know exactly what you will earn over a set period – fantastic if you rely on your savings for income
  • They can offer more competitive interest rates when compared to other types of savings account
  • They can be great if rates go down during the term of your bond – as you'll be earning more than the going rate that other savers are getting

The truth is that nobody knows what will happen to interest rates. People can make educated guesses, or predictions, which might help you to make a decision – but it still boils down to a guess.

Make sure you use your ISA allowance

Your ISA allowance is a great opportunity to earn more interest on your savings. The best fixed rate ISA is offering 4.50% AER (Governor Money Bank of Ireland UK - 5 Year Fixed Rate ISA). The best fixed savings account over the same period pays 4.70% AER.

But a non-ISA fixed rate account is subject to tax – 20% if you're a basic rate taxpayer, 40% if you pay higher rate tax. So that 4.70% actually means 3.76% for a basic rate taxpayer – or only 2.82% for somebody paying the higher rate.

Admittedly you can only pay £5,340 into a cash ISA each year – but that's still a big tax break for your savings.

Best 5 year fixed rate bonds

Product AER Details
Krbs
5 Year Fixed Rate Bond Issue 5
4.70%
Minimum investment £1,000
Early access allowed subject to interest penalty of 180 days
Clydesdale Bank
Term Deposits
4.70%
Monthly interest option available
Minimum investment £2,000
No early access allowed
Yorkshire Bank
Term Deposits
4.70%
Monthly interest option available
Minimum investment £2,000
No early access allowed
BM Savings
5 Year Fixed Rate

4.65%
Monthly interest option available
Minimum investment £1
Early access allowed subject to interest penalty of up to 365 days

Information correct as at 9.12.11

Best long term fixed rate ISAs

Product AER Details
Governor Money

Bank of Ireland UK -
5 Year Fixed Rate ISA
4.50%
5 year fixed rate ISA
Minimum investment £100
ISA transfers in allowed
Early access on closure only and subject to a breakage fee
Halifax
ISA Saver Fixed
4.40%
5 year fixed rate ISA
Minimum investment £500
ISA transfers in allowed
Early access allowed on closure only, with interest penalty of 365 days
Krbs
Flexible Fixed Rate ISA Five Year Issue 1
4.35%
5 year fixed rate ISA
Minimum investment £1,000
ISA transfers in allowed
Early access allowed subject to interest penalty of 180 days
Halifax
ISA Saver Fixed
4.30%
4 year fixed rate ISA
Minimum investment £500
ISA transfers in allowed
Early access allowed on closure only, with interest penalty of 320 days

Information correct as at 9.12.11

What next?

Compare long term fixed bonds
Compare long term fixed ISAs
Search all savings accounts

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

 
 
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