New Santander bond offers savers interest upfront
Santander has revealed a new savings bond that pays customers their interest upfront.
Savers deposit their cash in the account where it will be locked away for three years but you are paid your interest – at a rate of 3.36% – up front.
The interest rate is far from the best on the market but Santander is hoping to lure people in with the promise of instant cash in the run-up to Christmas. But is it a good deal?
Firstly, you have to deposit at least £10,000 into the account, which means most people won't be able to take advantage of the account, and the people who can afford to really won't be desperate for the upfront cash.
Secondly, if you are tempted to open the account, wait until December – the interest period doesn't begin until 2 December – so before then your money won't make any interest at all.
If you deposit £12,000 in the account on 2 December, you'll receive £1,000 (after tax) in interest immediately, says Santander. You can then choose whether you want to take that money or reinvest it into the savings account.
Given that you won't earn any more interest after that, there is little point reinvesting the money. And don't forget that the £12,000 you have deposited is then locked up until December 2014 - slowly being eroded by inflation.
In comparison, if you put your £12,000 into the best-buy three-year bond with Clydesdale Bank you would earn 4.3% interest, which equates to £13,303 for a basic-rate taxpayer after three years.
Even if you need £1,000 now and take that out of your £12,000 savings and only invest £11,000 into the Clydesdale account, you would still receive £1,194 in interest over the three years – that's £194 more than the Santander offer.
Santander's offer might sound revolutionary but, on this occasion, you would be better off sticking with a traditional savings account.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).