Tie yourself up in bonds for high interest savings returns

With interest rates in the doldrums, savers are being penalised for their prudence. Banks and building societies offer negligible rates of interest on most savings accounts. To approach anything like high interest on your savings, you will need to look at the prospect of putting your money away for at least a year, in a bond.

Bonds are well named, because your money is tied up, and secured to the initial rate of interest. In some respects it is a speculative investment, in that you are estimating that interest rates will not shift upwards during the time period of the bond, at least not significantly, and that you will profit from relatively high interest on your savings.

If you are not so sure that the rates won't leap, it's smart to restrict yourself to a one year bond. The Dunfermline Building Society (dunfermline.com) is among the market leaders with these kinds of fixed-rate bonds, offering an attractive rate of 3.55%.

For those who believe the pundits who predict that interest rates will be moribund for years to come, it can make sense to take advantage of the higher rates of interest on offer for longer-term bonds.

The Post Office (postoffice.co.uk) offers a 2 year bond with an interest rate of 3.96%, with a minimum investment of £500. FirstSave (firstsave.co.uk) offers a similar deal with an interest rate of 3.80%.

If you are happy to put away your money and forget about it for 5 years, you can enjoy high interest on savings. Saga (saga.co.uk) offers a rate of 4.60%, although you are gambling that this will be the best rate on offer for the next 5 years.

In a stagnant economy, high interest savings accounts are always going to be difficult to find. The important question is whether you believe the rates offered for long-term bonds amount to a generous deal. Study the financial press and the online advice sites to get a rounded view on where interest rates are heading.

United Kingdom - Excite Network Copyright ©1995 - 2021