4% monthly savings income but no access to your cash for a decade – a tough choice

Andrew Hagger of Moneycomms.co.uk comments on the new 10 year fixed rate bond from Leeds Building Society paying monthly interest of 4%.

This Leeds Building Society deal will put some consumers in a quandary – on one hand the monthly income at a rate of 4% is very attractive in the current savings environment, yet having no access to your capital for a decade is a big concern will prove too long a term for many.

However there is an appetite for this type of product as Leeds Building Society proved when it offered a 10 year 4% deal last November which was snapped up within 3 weeks – whether that was down to a high level demand or only a small amount of money being made available we’ll never know.

The minimum you need to tuck away to open this new bond is £10,000 and despite the long term lock in I can see it appealing to some savers as part of a wider more diverse savings portfolio.

Interest rate rises are a distinct possibility in the next 6-12 months with some predictions of base rate being at 2.5% in three years. If that is the case, and it’s a big if, the other unknown is how much of that 2% increase will be passed on to savers by providers?

It’s not easy being a saver at the moment, trying to select the best deal for your cash – it’s hard enough to predict where rates will be in 2016 let alone 2024.

To add to the confusion, 4% equates to 3.2% net for a basic rate tax payer which means this 4% 10 year deal is currently much better than the best 5 year fixed rate NISA deal of 2.85% (again from Leeds BS).

For the majority of us the 10 year term is the deal breaker here, but I’m sure there will be a decent take up from those keen to secure a higher level of monthly income.

It’s when you realise that you have to lock your funds away for 10 years to get a half decent return that Peer to Peer looks even more tempting – with RateSetter this morning offering 4.5% for 3 years and 6.4% for 5 years with Zopa at 5.2% for 5 Years.


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