Fixed-Rate Savings Bonds - What Next?

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by: Kate Tee
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Date: Fri, 28 Aug 2009 Time: 8:00 AM
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If you are one of the thousands of savers who piled into high-interest fixed-rate savings bonds a year ago, you may be in a quandary as to what to do now that your deal is about to end. Back then you could lock hard-earned cash into rates of 7 or 8%, but now you'd be lucky to find bonds paying half that. So if your bond is about to mature, where should you stash your cash?

Don't sit back

Crucially, if you fail to tell your provider where you want to move your money once the fixed term has ended, some will automatically move it into a maturity account which could be paying a paltry rate of interest - so you can't afford to do nothing.

Earn over 5%

Despite savings rates being slashed in recent months, the good news is there are signs of improving returns. Barnsley Building Society and a new player called Aldermore Bank have both just launched fixed-rate accounts paying 5.4%. However, both require your money to be locked away for five years, perhaps too long given that interest rates could rise sharply during this term.

Fix for the shorter term

If you're looking to fix for the shorter term, Barnsley also has a very competitive three-year bond paying 5% on £100, while Aldermore is offering a table-topping rate of 4.43% on its two-year bond, but on a minimum of £10,000.

Aldermore, like several other providers, is reserving its best rates for those with a hefty deposit to invest, putting such deals out of reach for those with smaller sums to squirrel away.
Elsewhere, the AA has a two-year bond paying 4.35% on £500, while Derbyshire Building Society has a one-year fix paying 3.75% on just £100.

Check out easy access

Don't limit your search for a savings account to fixed-rate bonds alone, as there are now some competitive easy access accounts on offer too, with the added advantage of being able to dip into your money or add to it at any time.

Alliance & Leicester and Birmingham Midshires are both paying 3.15% on balances of £1, and include bonuses for not making withdrawals for a year.

Beware of riskier products

Some savers may be tempted to boost their returns by venturing into more complex and riskier investments. But while the rates paid on structured products and guaranteed equity bonds are higher, there may be catches - so make sure you approach such deals with care.

Act fast

Given that the shelf lives of the "best buys" are likely to be days rather than weeks (as savers scramble to find a decent home for their cash), it could be a good idea to act fast to secure a competitive deal for your nest egg.

*Rates all correct as of 29/07/09

About the Author

Find out more about fixed rate saving bonds at http://www.confused.com/savings