Tesco: new bonds paying up to 3.7%

by ReenaSewraz on 02 May 2012  |  1 comment
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As Tesco get competitive across all their fixed rate bonds, we take a look at the accounts paying you the best interest rates on your cash.

Money doesn’t grow on trees but it can certainly flourish in the right type of savings account. For good savers who have exceeded their annual ISA allowance and have a lump sum of money lying around, there are plenty of enticing looking fixed rate savings bonds to choose from.

Savers should perhaps act quickly though, as according to Moneyfacts rates on offer for bond accounts have seen a drop over the last 12 months across all lengths of deals. On average last year savers were able to secure a rate of 4.17% on a five-year deal whereas today the average is 3.99%.

That said, Tesco has thrown down the gauntlet to its rivals with a new batch of bonds that are right at the top of the best buy tables.

The Tesco bond

Tesco is offering a higher interest rate across all three of its bond products. Now savers can take advantage of fixed rate savings bonds for one year at 3.5%, two years at 3.6% or three years at 3.7%.

The account is easy to open online and requires a minimum deposit of £2,000. Savers can choose to have the interest paid into a separate bank account on either a monthly or annual basis.

However, as with many bonds you can only make one deposit (within 30 days of opening your account in this case) and once the money is in there you are not permitted to withdraw any until the term of the bond is completed.

So how does this compare? Take a look at the tables we have compiled across a range of bond lengths organised by highest interest rates.

One-year fixed rate bonds

The market leader is Cahoot for a one-year fixed rate bond, but in order to qualify for the 3.60% interest rate you will have to hand over a minimum of £25,000, taking it out of the reach of many borrowers. If you have something nearer £2,000 to invest Tesco is your best bet and offers a competitive 3.50%.

Two-year fixed rate bonds

 *Fixed to 16/05/2014

Tesco has a way to go in the two year fixed rate bonds table. Allied Irish is top here with a rate of 3.80% with a reasonable £1,000 minimum deposit in order to qualify.

Three-year fixed rate bonds

 * Fixed to 27/05/2015

Vanquis is top of the three-year fixed bonds table with a fantastic 3.91%. You only need £1,000 to open this account.

Four- and five-year fixed rate bonds

*Fixed to 10/05/17

The Bank of London and The Middle East has the best deal for savers prepared to go without for five years and a hefty minimum deposit of £25,000. If you don't have quite that much at your disposal, then the 4.41% deal from Vanquis is worth a look too.

Why choose a bond?

According to Moneyfacts in order to beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 4.38% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 5.83%.

Sadly you will be hard pressed to find an inflation busting rate on easy access savings accounts (the highest I could find was a little over 3.1%) or instant access cash ISAs (the best rate I could find was 4.0%). However, if you are prepared to lock your money away for a set period of time you could benefit from higher interest rates in savings bonds.

From the tables above you can see that a bond for five years with the AA could help you keep the value of your money with an interest rate of 4.40% and even on lower paying deals you could still be earning more than standard savings accounts.

The downsides to bonds

There are a few downsides to going with a bond though:

Obviously, there is the fact that your money is out of reach. You may not think you will need that money for a while, but things change. What if your boiler blows up or you suddenly need a new car? Be sure to have an emergency fund that you can access.

Then there's the issue of rates. Sure, the rates look great at the moment. But if rates across the market begin to rise, you may soon find yourself locked into an uncompetitive deal.

More on savings:

New market-leading easy access savings account

Why I’m saying no to a return of 7.2%

Secret accounts for senior savers!

The best Junior ISAs

The top fixed rate savings bonds