With interest rates on savings accounts being so low recently, this new savings bond offering 3.5 percent may seem like an “attractive” offer, and it may encourage people to lock away their money to receive the returns promised. On the AJ Bell Money & Markets podcast, Laura Suter, head of personal finance at AJ Bell discussed this new bond, and what people need to consider before applying for it.
The interest is going to be paid twice a year, and there is a £500 minimum investment.
After that it goes up in multiples of £100, she explained.
If people are interested, applications close on the December 2.
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Ms Suter continued: “If we look at how it stacks up to others, there aren’t really many others in the normal savings account market like that are 10-year bonds.
“But current five-year bonds, which are the longest I could find that is widely available, the interest on that is just over two percent so in comparison to that it is fairly good.”
NS&I recently announced a three-year green bond which could be an option for those who are considering ethical investing, she suggested.
However, this green bond offers 0.65 percent, so the CAF “offers a lot more”.
“But if the organisation fails, you’re not usually protected, you don’t usually get protection from the FSCS which is the compensation scheme.
“So, it’s very different in terms of the risk you’re taking than just opening a fixed rate bond savings account, so you need to factor that in.”
Furthermore, she explained that once someone starts paying into the bond, they can’t withdraw their money until the ten years is over, so people should only put in money they don’t need.
With a mini bond, there’s not usually a “good second market” In terms of getting one’s money back early and paying an interest penalty.
People may be able to sell on their bond to someone else but there’s not always a good market for this, so she emphasised that people should know they won’t need this money for 10 years.
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