Savings: how long should you fix?
Bradford & Bingley has launched a new fixed-rate savings account paying 4.35% AER for two years.
While this is far from the highest paying fixed-rate account on the market, the fact that it is a two-year bond will appeal to many savers. Currently, most of the best-paying savings accounts require you to lock your money away for five years, with one deal fixed for an astonishing 10 years.
With the outlook for interest rates still unclear, putting your money in such a long-term savings account is risky. In most cases, you won’t be able to access your cash during the term without losing all of the interest built up. So, if rates on new savings accounts increases in the years ahead - as they are expected to do - you will not be able to take advantage.
Opting for a shorter-term account is, therefore, a wise move for many savers. Bradford & Bingley’s account is fixed at 4.35% until 1 October 2011.
Reza Attar-Zadeh, director of savings and investments at Santander, which owns Bradford & Bingley’s savings business, says: "This new rate is available for new and existing customers via Bradford & Bingley online, 24 hours a day. However savers should act fast as this is available for a limited time only."
The small print
* No withdrawals permitted prior to 1 October 2011
* 4.35 per cent gross/AER fixed until 01 October 2011
* Minimum £10,000 deposit (maximum £2 million)
* Access is online only
* Choose from annual interest (which can be credited back into your account or paid out to you) or monthly interest (which is paid out on the last day of the month and can be paid out or credited back to the account)
How it compares
When looking at fixed-rate savings accounts, your first decision should be how long you want to tie your money up to. If you really don’t think you’ll need to make a withdrawal within, say, five years then you can opt for a long-term deal paying a top rate of interest.
However, if you think you might need access within that time, or you simply believe that interest rates on new deals will improve down the line, then a shorter-term account might be better for your needs.
|Yorkshire Building Society||5.3%||£100|
|Principality Building Society||5.1%||£500|
|Barnsley Building Society||5%||£100|
|Yorkshire Building Society||4.5%||£100|
|West Bromwich Building Society||4.65%||£5,000|
|Yorkshire Building Society||4.65%||£100|
|Chelsea Building Society||4.6%||£1,000|
|West Bromwich Building Society||4.4%||£5,000|
|Chelsea Building Society||4.4%||£1,000|
|Bradford & Bingley||4.35%||£10,000|
|Chelsea Building Society||3.8%||£1,000|
|Progressive Building Society||3.65%||£500|
|Derbyshire Building Society||3.5%||£100|
|Cheltenham & Gloucester||3.5%||£100|
Rates correct 15 September 2009
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
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.
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