Pound LandscapeWe all know savers have had it tough over the past few years. Low interest rates, pushed even lower by Government initiatives to help the mortgage market and relatively high inflation, have all combined to make it almost impossible for savers to get a ‘real return’ on their cash.

It’s nearly always been the case that savers will get a better rate of interest the longer they are prepared to tie up their savings; a five year fixed rate bond will pay a better rate of interest than a one year fixed rate bond.

But should you be tempted by a clutch of fixed rate bonds which ask you to tie up your savings for seven and even 10 years?

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A warning about your savings

Secure Trust Bank, the Skipton Building Society and First Save all currently offer a seven year fixed rate bond, whilst the Leeds Building Society have a 10 year fixed rate bond.

The seven year rates pay approximately 0.30% more than a similar five year fixed rate bond, whilst the 10 year fixed rate bond from the Leeds Building Society pays 4.00% gross per year; by far the highest rate currently available to savers.

But there’s a catch, you have to tie up your money, without access, for the full seven or 10 years, which leads us to conclude these accounts are a step too far.

Some people might point to the 10 year fixed rate bond offered by Birmingham Midshires in 2008 which paid 6% per year. Of course in hindsight that looks like a great rate, but that was before the full effects of the financial crisis became obvious and long before the Funding for Lending scheme, which pushed interest rates even lower, was thought up.

Things are different now though.

Interest rates at an all-time low and likely to only go one way, especially when the Funding for Lending scheme comes to an end in January 2015. The economy is slowly recovering and the Bank of England has indicated that rates may start to rise when unemployment falls to 7%, predicted to be in around three years.

Imagine being stuck in a seven or 10 year bond and having to watch rates slowly rise, it wouldn’t take much either to see rates top those currently being offered on these long term bonds.

Individual circumstances

Of course if you need the monthly income and you are comfortable tying up your money for the full 10 years, then the latest offering from the Leeds Building Society could be right for you.

But before you do, think about how your circumstances might change over the next 10 years, could you need access to the cash? How would you feel if rates were to rise?

Savings alternatives

If you are not prepared to tie up your savings for seven or even 10 years, which other accounts should you consider if you are looking for a fixed rate? We’d suggest you consider the following accounts:

Type of accountCompanyInterest rate (gross per annum)More details
One Year Fixed Rate BondVirgin Money1.91%
Two Year Fixed Rate BondAldermore2.33%
Three Year Fixed Rate BondShawbrook Bank2.65%
Four Year Fixed Rate BondVanquis Bank2.91%
Five Year Fixed Rate BondAldermore3.15%

Do you need help or advice?

Our team of Independent Financial Advisers in Nottingham are experienced in advising savers on their cash options.

If you would like advice on your options call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk