Leeds Building Society 10 year fixed rate savings bond paying 4% – deal or no deal?

KA9A5958Andrew Hagger of Moneycomms.co.uk looks at the new 4% 10 year fixed rate savings bond launched by Leeds Building Society on 20th November 2013.

I’m sure many people will feel that 10 years is too long to go without access to their capital, but for those looking to squeeze the highest possible monthly income they can from their nest egg, the 4% rate will look very tempting.

This is the first time a 4% fixed rate savings deal (excluding peer to peer) has been available since November 2012.

Even the best buy 7 year fix currently offering just 3.52% (Secure Trust Bank).

It’s difficult trying to second guess whether this will turn out to be a wise savings choice, particularly as experts and economists have repeatedly got it wrong when predicting potential base rate rises over the last three or four years and even now there are wide variations as to when we will see the first increase in base rate since July 2007.

I’m sure many people looked at the 10 year fixed rate savings bond from Birmingham Midshires in the summer of 2008 and thought it was too much of a risk too.

But in hindsight the rate of 6% on offer at the time would have turned out to have been a very shrewd move.

If you are 100% comfortable locking your cash away, it’s worth comparing the monthly income available from the current best buy fixed rate deals (with monthly interest) – based on a savings pot of £50,000.


TermProviderInterest rate (monthly)Monthly interest income (gross)Monthly interest income (net basic tax)
10 YearsLeeds Building Society4.00%£166.66£133.33
7 YearsSkipton Building Society3.45%£143.75£115.00
5 YearsTesco Bank3.01%£125.41£100.33
2 YearsTesco Bank2.23%£92.92£74.33

If you opted for the 5 year deal from Tesco Bank at 3.01% monthly you would need to get a rate of at least 5.00% for the subsequent 5 years to achieve the equivalent income generated by the Leeds Building Society rate of 4% for 10 years.

However if income now (rather than later) is your key concern then the extra £1980 net you’d earn in the first 5 years with Leeds BS may be the most important factor.

Industry experts will give their opinion as to whether this product represents a good or bad deal, but with so many unknowns that could impact future interest rates, it’s difficult to call and much comes down to individual needs and preferences.

With a reported £37 billion currently in fixed rate bonds of 5 years or more (CACI), there’s certainly an appetite for longer term fixed rate deals, something echoed by Shawbrook Bank this month when it revealed that 40% of its deposits income between July and September 2013 was generated by its 5 year fixed rate product.

When rates do eventually increase, it’s likely to be slowly and by small increments (0.25%) and even then whether providers decide to pass the full increases on to savers is by no way a forgone conclusion.

With Funding for Lending here to say until January 2015 savings rates are likely to remain stifled for the next 12 months, but other factors including the level of UK unemployment, an unstable Eurozone, inflationary uncertainties and a possible housing boom (and crash) could all have a significant say in where rates end up during the coming decade.

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