State Bank of India unveils flexible five-year bond

savings jar

A competitive five-year stepped rate bond has been launched in the UK by India’s largest bank, paying an average of 4.5%.

The State Bank of India, which is also India’s oldest bank, is offering a bond that pays out 3.25% in year one, 4% in year two, 4.5% in the third year, 5% in the fourth and 5.75% in the final year.

Savers are also able to withdraw their money in full after two years, without any penalties or loss of interest. So if the Bank of England rate rises in future and savings rates improve generally, savers are free to exit the bond after two, three or four years.

The rates compare favourably to other fixed-rate accounts. For example, the best rate on a one year-bond is from fellow Indian bank ICICI at 3.06%, while ICICI also offers a top rate for five years, at 4.65%.

Nick McBreen, an independent financial adviser at Worldwide Financial Planning, advises that savers interested in the bond should apply quickly. "This bond will no doubt appeal to a large number of savers searching for better rates - and no doubt will close very quickly," he says.

According to McBreen, the two-year exit window is also attractive. However, he sounds a warning about locking up your money for the full five years. "The issue here for savers and investors is why lock away money for five years in a deposit account? There may be sound reasons - a target event for which the capital will be needed at the five-year mark, such as wedding or university costs - but any saver must consider the opportunity cost here as well as the implications [of paying tax on all the interest].

"They should at least consider the potential upside in the equity markets over the next five years, even if they decide the risk of the downside is not for them."

The bond has a minimum deposit of £1,000 and there is a monthly interest option. It can be opened by post after downloading an application form at, or in bank branches.

The State Bank of India is signed up to the Financial Services Compensation Scheme in the UK and is regulated by the Financial Services Authority. It has several branches in London, as well as Birmingham, Harrow, Leicester, Manchester and Southall.

Anil Arora, head of customer services of State Bank of India UK, says: "This Five-year Stepped-rate Bond was developed following feedback from our customers, who said they would like the higher rates associated with fixed-rate bonds, but wanted to access their money after a relatively short time frame should they need it.

"We want to offer the best of both worlds – high rates and flexibility – to give UK savers the best possible deal on their savings."

The bond is an international account, so it is available to people non-resident in the UK, such as expatriates.

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