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SINCE interest rates began to plunge a year ago, savers have been resigned to the fact that nest eggs built up over many years might generate little useful income this side of 2011.

Barely 15 months ago, in June 2008, savers on three-year fixed deals were getting 7% or more on deposits.

After six base-rate cuts from October to March, money market funds with managers such as Fidelity and F&C pay only 0.18% to 0.5%. Many savings accounts are in the same ball park.

At long last, however, savers seeking regular income have got a bit of a break.

National Savings & Investments (NS&I) is launching a new Guaranteed Growth Bond at a market-leading rate of 3.95% gross for its one-year deal.

On growth bonds, interest rolls up until maturity, and NS&I pays 4.25%, 4.40% and 4.6% on two, three and five years respectively.

Income bonds, paying monthly interest, offer 4.15%, 4.30% and 4.5% over two, three and five years (lower figures due to the complexities of compound interest).

In both cases, tax is deducted at source, so the bonds cannot be held in an ISA.

The Guaranteed Growth Bond leaves rivals trailing in its wake.

The Post Office, promoting savings products with veteran actor Sir Roger Moore, has such bonds over one, three and five years at 3.70% gross, 4.25% and 4.55% respectively, paying interest on maturity.

The Investec High5 Account, its rate calculated from an average of the top-five paying accounts in Moneyfacts' tables, pays 3.29% on minimum pounds 25,000 deposits. But there's a 90-day notice period on withdrawals, or penalty charge of 0.5% of any emergency withdrawals.

As for Nationwide's grandly-titled Champion Saver account, launched in August promising "great value" may have taken an early knockout. It is paying just 2.80% - including a 1.10% bonus vanishing in January 2011.

Andrew Hagger at Moneynet.co.uk says NS&I appears to have rediscovered an appetite for fixed-rate retail savings.

"This product shoots straight to the top of the one-year fixed-rate bond buys, a full 0.20% higher than its nearest rival," he says.

Many holders of NS&I Premium Bonds, where the flow of prizes has shrunk to a trickle might switch to bonds for certainty of income.

Attractions of the NS&I product include the 100% Government guarantee on deposits and generous withdrawal terms if better rates come along.

INFORMATION: NS&I Guaranteed Growth and Income Bonds must be purchased direct from NS&I on 0500 007 007 or online at www.nsandi.com.

See also, www.postoffice.co.uk; Investec High 5 (0845 366 6333) and www.investechigh5.co.uk.
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Publication:Wales On Sunday (Cardiff, Wales)
Date:Nov 1, 2009
Words:453
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