cahoot launches fix paying 4.01%
cahoot has launched a new two-year fixed savings account paying 4.01%.
The deal, which is fixed until 30 April 2011, is available to both new and existing cahoot customers – but only as long as the funds paid in are not transferred from other Santander-owned banks. So people with their money in Abbey, Alliance & Leicester or Bradford & Bingley need not apply.
In addition, although this is an attractive rate, you’ll only qualify if you have at least £30,000 to deposit upfront. No additional deposits are allowed, and withdrawals are forbidden during the two-year life of the account. If you do take your money out before 30 April 2011, you could lose the interest earned.
The deal pays you interest on an annual basis, so you will benefit from compound interest after the first year.
Matthew Timms, managing director of cahoot, says: "This is a highly competitive bond in the current market that complements cahoot's existing range of competitive products, and with the financial backing of one of the world's largest banks it gives savers peace of mind and security for their money"
How does it compare?
In terms of two-year fixed-rate offerings, cahoot is in good company. Currently, the best rate on this type of deal is offered by ICICI Bank; its HiSave Account pays 4.1% AER for 24 months.
You’ll need £1,000 to deposit upfront to open this account. Or ICICI pays 3.9% on its one-year fixed deal, which again requires a £1,000 deposit. Neither account allows early access.
Elsewhere, Santander rules the roost. Cater Allen Private Bank, which like cahoot is owned by the Spanish bank, pays up to 4.11% on its three-year fixed account. However, to qualify for this deal you’ll need to have at least £1 million to lock away.
Smaller deposits will earn you a lower rate of interest; Cater Allen pays 3.85% for anyone with between £5,000 and £50,000 saved; 4% for anyone with £50,000 to £250,000 deposited; or 4.08% if your balance is between £250,000 and £1 million.
It also offers a two-year fixed-rate deal that similarly has a tiered interest structure; so, deposits of between £5,000 and £50,000 will earn 3.68% AER, rising to 3.85% AER if you save more than £50,000. If your balance is more than £250,000, the rate rises again to 3.92% AER and if you have £1 million to save, you’ll earn 4%.
Remember that under the Financial Services Compensation Scheme, you are only protected on the first £50,000 per customer per bank. While Santander is a big bank, if you want utter certainty that your money won’t be lost if it fails, then you should split your money across several different banks.
Abbey and Alliance & Leicester, which are also Santander-owned firms, also offer best-buy fixed-rate deals. Both accounts are fixed for two years and pay 4.01% AER. However, you’ll need £30,000 as a deposit to qualify for these deals.
Finally, Halifax – which is part of Lloyds Banking Group – offers a Websaver account that pays 4.1% AER on deposits of £500 - but you will need to be prepared to lock away your money for five years.
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.