Leeds Building Society has launched a new 18-month fixed rate bond offering a market-leading rate of 2% - but it still won’t match inflation.
The new bond can be opened in branch, by telephone or online, and requires a minimum balance of £1,000.
Savers can deposit up to £250,000 in the bond – though only £85,000 of this will be protected by the Financial Services Compensation Scheme.
Savers will also not be able to access their cash during the term.
“The 18-month term gives investors more choice if they’re seeking a competitive return but don’t want to lock away their cash for longer,” said Jaedon Green, Leeds Building Society’s General Manager of Products.
“It’s a good compromise between the more usual fixed rate bond terms of one and two years.”
The Old Inflation Problem
The new Leeds bond follows hot on the heels of the new product range from Kent Reliance (KRBS), which is offering a one-year bond at 1.9% and a two-year bond at 2.25%.
However, the new bonds are barely able to match inflation, which rose to 1.8% in April.
Taxpayers now require 2.16% on their savings to keep their purchasing power the same.
Of the new deals available from Leeds and the Kent Reliance, only the new two-year deal from KRBS is able to keep pace with the current rate of inflation.
There is also a growing expectation that the Bank of England will begin a series of interest rate increases over the coming twelve months.
Savers will hope that this leads to better savings rates, and will be reluctant to lock their funds away for any substantial period of time.
Better Options for Savers
Better options are currently available from slightly less traditional sources, including peer-to-peer lending portals and current accounts.
TSB and Nationwide are both offering 5% interest on balances worth up to £2,000 and £2,500 respectively.
The new Lloyds Club account offers 4% on balances up to £5,000, though you’ll have to deposit £1,500 a month to qualify.
For those with more to invest, the tiered interest on Santander’s 123 current account allows savers to earn 3% on balances between £3,000 and £20,000 – a maximum of £600 a year (£450 net).
The same amount invested into the Leeds bond would return £400 per annum during the 18-month term (£320 net), while the two-year KRBS bond would return £450 during the first year (£360 net) and £458 during the second year (£366 net).