Fixed-rate bonds: Make the most of your savings

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Fixed-rate bonds: Make the most of your savings

During uncertain economic times the safest thing to do can often be to save up money and an effective way of doing this is to take out a fixed-rate bond.

Recently the Nationwide Savings Index for September was released and it showed an increase of ten points to 87 - the highest level it has been since November 2008.

This index is measured by the building society to gauge public opinion on saving, with a higher number indicating greater importance.

With public opinion very much in favour of hoarding money away, it is unsurprising to see that several banks and building societies have jumped on this trend and brought out new products.

While it can be a tough choice to decide which bond to invest in next, another issue to pay attention to is what date any current bonds mature, according to moneysupermarket.com.

Kevin Mountford, head of banking at the comparison site, said: "It is crucial that people keep an eye on their bonds and be aware of when they mature, otherwise they're likely to lose out on a significant amount of interest."

He claimed that many fixed-rate bond providers will switch the money over to a standard-rate savings account when a deal finishes.

Also, consumers should be aware that when a provider withdraws a product and replaces it with another, it will not always have the same rate of return.

Recent research by uSwitch indicated that ten different institutions had lowered the interest on such 'replacement' products by up to 0.5 per cent.

Earlier this month, moneysupermarket.com published a list of its best-buy fixed-rate bonds and leading the pack are products from Yorkshire Building Society and Barnsley Building Society.

Yorkshire Building Society is offering interest of 5.3 per cent on its five-year product and 4.65 per cent on its three-year bond.

Chris Edwards, head of mortgages and savings at the organisation, pointed out: "Unlike the vast majority of other bonds being offered in the market, all of our fixed-rate bonds have a low minimum investment of just £100."

Meanwhile Barnsley Building Society's Online Bond offers savers five per cent gross interest for a four-year term and 4.7 per cent on its three-year product, which also asks for a minimum balance of £100.

Recently, Barclays launched a range of fixed-rate bonds that look set to compete with the top products available.

The financial services provider released a two-year deal which pays 4.25 per cent interest as long as more than £40,000 is invested, while balances from £500 up to this figure will receive 3.75 per cent interest.

Andy Gray, head of mortgages and savings at the organisation, said: "The two year bond complements the range giving a strong rate and accommodates savers who are not in a position to lock away their savings for longer."

Barclays also unveiled a five-year bond paying 5.25 per cent and a one-year product offering three per cent interest, both on balances above £500.

With the Bank of England's base rate still standing at 0.5 per cent, these rates look competitive, but are interest rates likely to increase in the near future?

The Bank's Monetary Policy Committee will next vote on any changes to the base rate on November 5th, although one financial expert does not expect drastic changes any time soon.

Neil Young, chief executive officer of Young Group, said: "Investors expect to see an upward movement in base rate from the current historic low of 0.5 per cent, but that the uplift will be gradual, as you would perhaps expect when emerging from an economic downturn."

So, the real question is how long savers can afford to lock their money away for, according to moneyfacts.co.uk.

"Providers currently want your money for longer and are willing to pay for it," concluded Rachel Thrussel, a savings expert from the website.ADNFCR-323-ID-19423117-ADNFCR

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