With Bank Rate at a seven year low, savers are starting to feel the pain.
Since January, interest rate cuts have outnumbered rises and customers may be left wondering if there any decent deals currently available.
The fixed-rate bond market may have been quiet of late, however there are a number of accounts that pay far more than the average rate.
Savers who have used up their cash Isa subscription for this tax year (£15,240), and want to deposit any extra savings into fixed-rate bonds or easy-access savings accounts, should read this guide (which will be updated as deals change) to find out the best rates on offer. It’s part of our series of articles that highlight the best savings deals – and expose the catches.
Fixed-rate savings accounts impose penalties of lost interest if you want to withdraw money.
Consider rates predictions
Interest rates on savings accounts and Isas are influenced most by the UK Bank Rate, which means if this rises in the next few years and you’re locked into a five-year bond, you could miss out on better rates offered elsewhere. Bank Rate, which has remained at 0.5pc for the past seven years, looks set to remain fixed until August 2019, according to recent predictions.
Fixing your money into a one-, two- or three-year fixed-rate bond could be a good idea if the income meets your needs, and you’re certain you won’t need to touch the money during the fixed term.
Best fixed-rate bonds
ONE YEAR
Bank of Baroda pays the top rate of 1.9pc. Accounts can be opened online with a minimum deposit of £500. No access is permitted during the term.
Al Rayan Bank also offers 1.9pc although customers need at least £1,000 to open the account. Al Rayan does not pay interest. Instead, the Islamic bank pays an “estimated profit rate” which is not guaranteed. However, the bank says it has always achieved the target rate since it launched in 2004.
TWO YEARS
Punjab National Bank and Fidor Bankboth pay 2.2pc.
Accounts opened with Punjab National Bank can be opened with a minimum deposit of £1,000 by post or in one of seven branches. Customers must hold or open a current account or savings account with the bank before opening the fixed-term deposit account. The documents sent in need to be certified by a registered professional such as a solicitor or accountant. The account may be closed early but the interest rate will be reduced by 0.5pc.
Fidor Bank also pays 2.2pc on a minimum balance of £100. Customers must hold or open a Smart Current account first. Fidor Bank is not covered by the Financial Services Compensation Scheme which protects deposits of £75,000. Instead, it subscribes to the German equivalent which will compensate customers up to €100,000.
Al Rayan Bank offers a higher target rate of 2.3pc on balances above £1,000. However, savers would need to be comfortable with the Sharia compliant “estimated profit rate” which is paid instead of interest and is not guaranteed.
THREE YEARS
Punjab National Bank pays 2.4pc on balances held between three and four years. As above, the same rules apply.
Customers could potentially get a higher rate with Al Rayan Bankwhich pays a 2.5pc “estimated profit rate”.
Fidor Bank pays 2.45pc on balances as small as £100. Customers need to open a Smart Current account online before depositing funds in the bond. As stated above, the German bank “passports” and is not covered by the UK’s Financial Services Compensation Scheme which protects up to £75,000.
FOUR YEARS
Once again, Punjab National Bank tops the tables paying 2.6pc on deposits tied up between four and five years.
Bank of Baroda has an online bond that pays 2.5pc. Savers need a minimum of £500 to open the account.
FIVE YEARS
State Bank of India pays the top rate of 2.9pc but only on balances above £10,000. Accounts can be opened and managed online or in one of its 12 branches.
Customers with a smaller deposit can open a Bank of Baroda five-year bond with £500 and earn 2.85pc.
Islamic Bank, Milestone Savings pays a 2.8pc “expected profit rate” on a minimum balance of £10,000.
SOURCE: Telegraph.co.uk
