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News
Escape your bonds?
If you have a one-year bank or building society bond about to mature, you may find that your money is going to be automatically transferred to an account paying minimal interest. For example, Northern Rock pays just 0.25% on its matured bonds at the time of writing.1 Some deposit takers will roll over your investment into a new bond for the same term, but give you the option of withdrawing penalty-free within a month.
Some deposit takers will roll over your investment into a new bond for the same term, but give you the option of withdrawing penalty-free within a month.
Twelve months ago, when bank base rates were 5%, you could find one-year fixed rate deposits paying 7% gross interest. It was a tempting offer, particularly given the turbulence in the stock market at the time.
Now those bonds are maturing and the interest rate picture is very different. Base rates have fallen to 0.5% and the best one-year fixed rate bond is offering below 4%. There are slightly higher rates for longer term deposits, but nothing approaching 7%.
If your main goal is income, in the current environment there is no avoiding a substantial fall if you stick to fixed term deposits. However, if you are prepared to accept the risk of losing some or all of your capital. there is a wide range of investment funds which currently offer higher levels of income than one-year deposits. For example:
* Corporate bond funds, which invest in fixed interest securities issued by companies.
* UK equity income funds, which generally invest in shares with a higher than average dividend yield.
* International equity income funds, which focus on higher yielding shares outside the UK.
All three fund types can be held within an individual savings account (ISA), but do not afford the same capital security as a deposit account. ISAs are particularly suited to corporate bond funds, because the interest from these funds flows through to investors free of UK tax. The investment limit is double the cash ISA ceiling.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The FSA does not regulate tax advice or deposit accounts.
1. Source: www.northernrock.co.uk/savings/ saving-rates/fixed rate
If you have a one-year bank or building society bond about to mature, you may find that your money is going to be automatically transferred to an account paying minimal interest. For example, Northern Rock pays just 0.25% on its matured bonds at the time of writing.1 Some deposit takers will roll over your investment into a new bond for the same term, but give you the option of withdrawing penalty-free within a month.
Some deposit takers will roll over your investment into a new bond for the same term, but give you the option of withdrawing penalty-free within a month.
Twelve months ago, when bank base rates were 5%, you could find one-year fixed rate deposits paying 7% gross interest. It was a tempting offer, particularly given the turbulence in the stock market at the time.
Now those bonds are maturing and the interest rate picture is very different. Base rates have fallen to 0.5% and the best one-year fixed rate bond is offering below 4%. There are slightly higher rates for longer term deposits, but nothing approaching 7%.
If your main goal is income, in the current environment there is no avoiding a substantial fall if you stick to fixed term deposits. However, if you are prepared to accept the risk of losing some or all of your capital. there is a wide range of investment funds which currently offer higher levels of income than one-year deposits. For example:
* Corporate bond funds, which invest in fixed interest securities issued by companies.
* UK equity income funds, which generally invest in shares with a higher than average dividend yield.
* International equity income funds, which focus on higher yielding shares outside the UK.
All three fund types can be held within an individual savings account (ISA), but do not afford the same capital security as a deposit account. ISAs are particularly suited to corporate bond funds, because the interest from these funds flows through to investors free of UK tax. The investment limit is double the cash ISA ceiling.
Levels and bases of, and reliefs from, taxation are subject to change and their value depends on the individual circumstances of the investor. The FSA does not regulate tax advice or deposit accounts.
1. Source: www.northernrock.co.uk/savings/ saving-rates/fixed rate