With interest rates on current accounts being negligible, many savers are looking for other options as to where to store their wealth. The matter becomes one of priority when searching for somewhere to deposit a lump sum; taking advantage of any opportunity to accumulate interest is important. Knowing how to do this in a way that is sensible and puts the savings in a safe position has led many to Fixed rate bonds.
What are Fixed rate bonds?
Paying a fixed interest rate, over a certain amount of time, Fixed rate bonds give investors the opportunity to put away a lump sum of cash, knowing what rate of interest it will receive, and exactly when it will mature. The length of the period it is put away for varies, and the rate of the interest is in keeping with how long this is. The longer money is locked away for, the higher the rate of interest. They differ from Variable Rate Savings Accounts in that interest does not change; the rate agreed upon when the account is opened remains until it has completed its fixed term.
How do fixed rate bonds operate?
Best suited to those who feel they won’t require access to for a certain period; Fixed rate bonds reward those who are happy to leave their money alone. The rate of interest, and the length of time you won’t be able to access it for is set at the time it is taken out, and will not alter. This can be advantageous if interest rates across the economy stay the same, or look likely to fall; they will obviously not go down in regards to the Fixed rate bonds. If the interest rate should rise however, the rate stays the same. This means that any advantages that could be felt as a result of a significant interest rate rise won’t be felt by those with money in a Fixed Rate bond. This potential situation forms part of the reason that interest rates on Fixed rate bonds are attractive. The exact terms vary from account to account, with a minimum investment of just £1,000 when investing with SynerGIS. The Personal Savings Allowance which was introduced in April 2016 means that the first £1,000 of any interest made is tax free for standard rate tax payers. For those who pay higher rate, it is £500.
What are the advantages of a fixed rate bond?
Being completely aware of how things will work out is perhaps the biggest selling point for a Fixed Rate bond. The ability to know what you will receive and when, means that the potential to create an organised and structured approach to managing investments is possible. From this can stem other plans; things such as retirement, home purchasing, weddings or holidays can all be scheduled out in relation to knowing what interest will be received and when. There are no worries or concerns that may be caused by sudden drops in interest rates, meaning that a certain peace of mind exists in knowing that the investments are secure.
There are however, many flexible options to consider before taking out a Fixed bond, which should ensure that investors can find something that suits their requirements. As mentioned previously, the time commitments vary, usually between one and five years, and the interest adjusts accordingly. This provides a lot of opportunity for investors to fully consider upcoming events in their life, and how long they want to commit money to. There is also often flexibility with your investment at the end of it’s term. With SynerGIS, we allow you to rollover your investment into a new fixed term bond, or have it paid directly into your bank account. This is something to think about as the maturity date of your bond approaches, giving you time to review your options and renewed interest rates on offer.
Why choose to open a fixed rate bond?
There are many reasons that an investor may wish to open a Fixed Rate bond, some of which, such as planning for retirement, weddings, home purchases or other important events can be foreseen. There are also of course the unforeseen elements of life that many wish to protect against by using Fixed rate bonds. A big attraction at present are the generally low rates being offered by many accounts that let investors access their money instantly. Variable Rate Savings Account across the board have seen investors receive low levels of return, making Fixed rate bonds look appealing to those who feel they are sufficiently able to lock in money. Having an awareness of how interest rates may be going is a big advantage albeit one that is nearly impossible to gain. Financial experts can be listened to or observed, but are of course fallible in unpredictable times. Another issue comes in the notion that even if interest rates were to rise, it doesn’t necessary follow that this would be passed on to savers. Interest on accounts may not feel the appropriate benefit, which serves as a big draw for Fixed rate bonds, where investors know exactly what they will receive. This issue has been particularly noted in recent years, and has even seen savers experience interest rate cuts when there has been no movement in base rates. Fixed rate bonds are seen by many as a barrier against this.