Abbey Fixed Rate Bonds
Abbey has launched a new fixed rate bond offering very competitive rates of interest on one & two year terms. These great accounts allow you to calculate exactly how much interest you will earn from your investment, so you can sit back and watch your money grow.
The new Abbey fixed rate bonds have been designed to suit all types of savers, with the Abbey 1 year account offering savers a rate of 3.0% on balances of £1 up to £24,999 and 3.5% from £25,000 up to £2,000,000, and the 2 year account offering 4.01% on balances of £30,000 up to £2 million.
On maturity you can have your deposit plus the interest earned paid into an Abbey savings account or any other UK account held in a bank/building society.
These accounts are available to new and existing customers who plan to transfer or deposit funds that are not currently held within the Santander Group (Abbey, Alliance & Leicester, Bradford & Bingley, cahoot and Cater Allen)
You cannot make any further payments to your bond after the initial opening deposit, so make sure you put in the full amount you decide on at the start
This is a limited offer and subject to availability. Apply today as this product can be withdrawn at any time.
Protecting your money
Fixed rate bonds (otherwise known as fixed term bonds) are savings accounts designed for savers that are willing to take a little bit of a gamble with their money, without the actual risk of losing any of their original investment being lost, subject to the banks performance in line with the compensation limits offered. As long as your investment falls within the compensation limit provided by the bank or building society, the only thing you are gambling with the the interest you make.
Fixed term bonds feature many of the characteristics found in an instant access savings account, but with two main differences. Investors are expected to lock their savings away for a fixed period of time and the interest rate offered upon opening the account will also remain fixed throughout the duration of the bond.
Fixed term bonds usually offer better interest rates than instant access accounts, but this is not always the case, particularly when looking at bonds with longer terms. The reason for this is that these carry more risk to the banks as over the course of the term, the Bank of England could make significant interest rate cuts which would mean they would be paying over the odds for what they borrow.
As instant access bank accounts are generally the first to pass on rate changes, it is very important to be conscious of any changes. On the other hand, fixed term bonds provide peace of mind as rates will remain the same for the life of the bond.
During the last few months of 2008, The Bank of England cut its Base rate on several occasions, bringing it from 5.5% in October, to just 1.5% at the beginning of January 2009. This means that if you were lucky enough to open a fixed term bond account before these changes, you would now be benefiting from rates well above those currently offered on today’s market.
Some economists have predicted that rates will continue to fall over the coming months, so now could be a good time to apply for a fixed term bond account to fix yourself in on the best rate available.
However, there is another side to the coin, and this is where the gamble comes in. As well as the possibility of falling rates, you have to remember that it is equally possible that rates could rise, which would mean that the rate you are fixed at is below rates offered to new customers and instant access accounts. Before deciding on the type of account you wish to use, it is worth considering looking into the direction rates are predicted to take for the near future.
If you decide to put your savings into a fixed term bond, it is always a good idea to keep some of your money aside as backup. Circumstances often change without warning, and making early withdrawals to your bond can be difficult and is likely to incur loss of interest, so having a safety net will help to avoid you requiring access to your fixed term account.
Always ensure you are familiar with the compensation scheme offered by your proposed bank or building society. For more on compensation schemes and protection levels see Which4U’s Top Ten Savings Tips.
There are a some great fixed term bonds available, with rates well above the inflation rate and the Bank of England Base Rate, but these accounts may not be available for much longer, as it is expected that rates will fall further over the next few months.
Compare the best deals at www.which4u.co.uk and apply for your fixed term bond today!
Securing your money
Prime Minister Gordon Brown has said he will do “whatever it takes” to ensure that people’s savings are protected as the economy continues to battle through the financial crisis.
The possibility of savers losing money deposited into a bank never even crossed the minds of most people, and it was not until Northern Rock suffered financial problems and had to be nationalised that this possibility became more of a reality. The initial strategy started the Financial Services Compensation Scheme (FSCS) raising the level of potential compensation on savers deposits from £35,000 to £50,000. This limit is currently under review for a further increase.
After the Icelandic bank Icesave collapsed, many panicked as conditions with the way that their compensation scheme was set up meant that UK savers would not be covered for the first £16,000 of deposits. The UK government reacted by assuring all UK Icesave customers that their money would be refunded in full, regardless of any limits set by the FSCS.
So what measures have been put into place to ensure the safety of savers if a UK regulated bank or building society were to face similar problems?
The Financial Services Compensation Scheme (FSCS) was re-enforced last October to ease the crisis, and there has been a lot of debate over how to improve the system.
How has the system improved?
Before Northern Rock fell into trouble, the first £2,000 of savers money was fully protected, then 90% of the following £33,000 was protected. This meant that a £35,000 investment was only covered up to £31,700.
In October 2007, the system was re-structured, protecting savers for 100% of the first £35,000 per institution per person. This meant that as long as your money was spread out between different institutions, you could effectively protect large sums of money, and joint accounts would be seen as two people, therefore covering £70,000.
In October 2008 that threshold was again raised, from £35,000 to £50,000 per savings account
A fast track strategy has also been designed to provide those affected with access to some of their savings within 7 days of a bank closing.
It would currently take around a month before savers would be compensated if a large bank were to close.
How much of my savings are covered?
As it currently stands, any UK bank, building society or credit union will guarantee protection for deposits up to £50,000.
Banks from outside of Europe must set up a UK subsidiary in order to be allowed to operate in the UK and those subsidiaries must have a FSCS membership to provide protection on your savings.
Other systems are in place for banks based in the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) that cover against their home scheme.
These schemes are set up to provide compensation for at least the first €20,000, although some offer substantially more than that which can amount to more than current UK protection limit.
Most of these schemes are also partly covered by the FSCS so any remaining money between the €20,000 (around £16,300) and up to £50,000 is also covered.
All individuals are currently covered up to £50,000, so joint accounts are seen as two seperate individuals, thus covering up to £100,000.
The protection limit only applies per institution, so if you have more than £50,000 savings it is recommended that you spread the money around to ensure you are fully covered.
For example, if you had £50,000 saved with Alliance & Leicester and an additional £50,000 with Abbey, the full £100,000 would be protected. However, if you had accounts held with different brands that fall under the same institution such as Halifax and Bank of Scotland, you would only be covered up to £50,000 of your £100,000. Some institutions also allow multiple claims over their brands, so make sure you have done some research before deciding where to keep your money.
For an up-to-date list of which banks fall under the same institution and which are counted as independent with individual registrations to the Financial Services Authority (FSA) see Which4U’s list of banks by institutions.
Something else to keep in mind is that if you have your money in high interest savings accounts, your £50,000 can quickly increase, taking it over the protection limit so your interest will not be covered. The best way to avoid any problems is to work out how much interest you expect to accumulate, and invest the limit minus the difference.
What protection is provided for small businesses?
The FSCS set up the deposit protection scheme for private individuals. However, small businesses can also benefit from similar protection to savers if the limited company meets at least two of the following three criteria:
- A turnover of no more than £6.5 million
- A balance sheet total of no more than £3.26 million
- No more than 50 employees
Partnerships can only claim up to £50,000, rather than £50,000 per partner.
Sole traders can only claim up to £50,000 in total, with both personal and business accounts included. This means that personal and business accounts must be spread over different institutions.
What about Irish banks?
The Irish government recently decided to offer full protection on all deposits, bonds and debts. This gives investers the freedom to keep all of their money in one place without having to worry about the possibility of losing any of it.
The banks currently offering this unlimited protection are Allied Irish, Bank of Ireland, Anglo Irish Bank, Irish Life and Permanent, Irish Nationwide Building Society and the Educational Building Society.
Gordon Brown has not followed Ireland’s move to offer an unlimited protection, but has stated that the government won’t let any UK depositors lose any money.