Santander’s new Tracker Bond pays a respectable rate of 3.10%, plus it has the added bonus that when the base rate does increase, so will your interest rate. Read on to find out how the account works…
What’s the deal?
Santander’s 1 Year Tracker Bond currently pays 3.10% on a minimum investment of £10,000. The maximum you can invest in this account is £2million. However if you do choose to deposit a large sum into this account, remember that only the initial £85,000 will be covered by the Financial Services Compensation Scheme.
The account tracks the Bank of England base rate until the end of its one year term on June 1, 2012, plus another 2.60%, which gives the current payable rate of 3.10%. Some experts are predicting that base rates could end the year at 1.25%, which would push the rate on this account up to 3.85%. However, this is obviously not guaranteed.
You cannot make any additional deposits into this account once it has been opened, and the minimum investment limit is a steep £10,000, so savers with small sums to invest won’t be eligible.
You cannot make any withdrawals or close the account early, although you do have a 14-day cooling off period where you can choose to close the account if you suddenly have doubts about locking your money away for 12 months.
If a rate rise does occur, remember that you will not benefit from an increase in your savings rate until the first day of the following month, meaning that you will lose out on a higher rate of interest during this period.
If you are comfortable with the idea of locking your money away for a year then this account may appeal to you, especially if want to be able to benefit from interest rate increases.
The account already has an attractive start of rate of 3.10% and the fact that it tracks base rate at a generous 2.60% makes it a great choice for anyone who thinks interest rate increases are just around the corner.
However, there is always the risk that the base rate will remain the same for some months to come. If you believe that is the case then you may want to consider other one-year bonds paying a higher fixed rate of interest, such as FirstSave’s 1 Year Fixed Rate Bond at 3.50%.
Before locking your money away into a fixed rate account, make sure that tying your money up is something that you are able to do.
You won’t have access to any of your funds during the fixed duration so you may want to consider other options such as easy access accounts or cash ISAs if you haven’t already taken advantage of your tax free allowance.
To find the right savings account for you, use our savings comparison tool.
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.