Focus on: Fix your savings at 3.50% for a year

Published:
03 May 2012
Topic:
News,Money,Savings,Product review

The Bank of England is widely expected to hold interest rates at 0.50% again next Thursday, but there is some good news for savers as rates on one-year fixed term bonds continue to tick up.

Tesco Bank has just increased the rate on its one-year Fixed Rate Saver account from 3.25% to 3.50% if you have at least £2,000 to pay in, making it the leading online account on balances of less than £25,000.

Tesco's move comes hot on the heels of United National Bank raising the rate on its one-year fixed bond last week. We take a closer look to help you decide if this could be the right account for you... .

What's the deal?

The Tesco online bond pays a competitive 3.50% annual interest before tax, on a minimum investment of £2,000. Savers who want to receive interest monthly earn 3.45%.

You can only make one deposit and this must be made within 30 days of opening the account. The maximum you can invest is £5million, but if you are planning on investing a large sum of money, remember that only the first £85,000 is protected by the Financial Services Compensation Scheme.

The account is available to UK residents aged 18 or over and joint accounts are permitted. Tesco Bank says it will contact customers before the end of the term of their account with options on what they can do with their money.

Any catches?

Once you put your money into the Tesco bond, you cannot close the account early or get your money out until the end of the term, so you must be certain you won't need to get your hands on it.

If you are interested in this account then you shouldn't delay - it is a limited offer and may be withdrawn at any time without notice.

Verdict

This is the market-leading online bond for savers with at least £2,000 but less than £25,000 to invest.

The recent increase in its rate puts it ahead of United National's one-year bond, which pays 3.45% annual interest before tax. Savers with United National who choose to receive their interest monthly earn a marginally lower rate of 3.40%. The minimum deposit required to open the United National bond is also £2,000 and the maximum you can invest is £500,000.

However, if you have substantial savings, then Cahoot's one-year bond pays a higher rate of 3.60% annual interest before tax on a minimum investment of £25,000.

BM Savings also pays a higher rate of 3.51% on its one-year fixed rate bond, which can be opened for as little as £1, but this account can only be opened by post, and not online.

Top tip

Savers who are prepared to tie up their money for longer earn the highest rates of interest, with some five-year bonds paying interest nine times higher than the current base rate.

However, think carefully about locking your money up for too long, as rates may not seem quite as impressive when the base rate starts eventually starts to rise.

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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About This Author

Melanie Wright

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Financial journalist

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