Would you fix savings for 10 years at 4pc?
Money MOT: A new bond pays 4pc a year for a decade. The value all depends on when rates will rise 
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Savers are being offered 4pc annual income in exchange for locking their money away until 2024.
The bond from Leeds Building Society has been introduced “in response to customer demand” after the society’s previous ten year savings bond, released at the end of 2013 , was “extremely popular”, it said.
Desperate times – with the Bank Rate fixed at 0.5pc since 2009 – is driving savers, who are giving up on hope of significantly higher rates, to desperate measures, it would seem.
Kim Rebecchi of Leeds Building Society said: “In the historically low interest rate environment, a savings product with a competitive return which generates monthly income is particularly appealing to savers on fixed incomes.”
“We know there are savers seeking longer-term investments.”
The bond, which is available from today, requires a minimum balance of £10,000 (and £1m maximum) and no withdrawals can be made for the duration of the term (some banks and building societies allow savers to withdraw money with the penalty of lost interest).
Verdict:
Despite the bond being launched because of strong demand, many savers will be reluctant to lock their money away for such a long time.
Only a doomsday scenario for the economy would see no significant increases in rates within 10 years, although this is not entirely out of the question. The market currently predicts a rise in the Bank Rate to 3pc by 2018. Better savings rates should follow.
Market forecasts predict the first rise to be around June 2015, with any rise likely to be quite small. Gerard Lyons, Chief Economic Adviser to London Mayor Boris Johnson, disagrees, saying that UK interest rates will rise this year , and peak at 5pc within four or five years.
With that in mind, locking your money away for 10 years could be a mistake.
On the plus side, having the security of a fixed income until 2024 could be attractive to many savers will large sums sitting in the bank.
Putting £50,000 into the account would accrue interest of £18,512 over the decade (after basic-rate tax is deducted). Higher-rate tax payers would earn £13,382.
Account-holders have their interest paid monthly, therefore, a £50,000 investment would return monthly interest of £167 – a sum not to be overlooked.
“To add to the confusion, 4pc equates to 3.2pc net for a basic rate tax payer which means this 4pc 10 year deal is currently much better than the best five year fixed rate Nisa deal of 2.85pc (also from Leeds Building Society),” said Andrew Hagger of Moneycomms.co.uk, the research company.
Leeds’ bond is currently the only 10 year savings account on the market. Other longer-term bonds include Secure Trust’s seven year bond paying 3.52pc, and Shawbrook Bank’s five year account paying 3.2pc.
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