New Santander bond offers savers interest upfront

4 November 2011

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?

Check out the the best savings deals currently on the market in our best savings rates feature


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.

Read Johanna Gornitzki's blog: How i got an 8% savings rate

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.


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