National Savings & Investments has reintroduced Guaranteed Income Bonds
Monthly income-seekers have been given a glimmer of hope by the launch of several top deals.
Last week, National Savings & Investments reintroduced its popular Guaranteed Income Bonds, paying competitive —albeit still low — rates.
Its one-year rate at 1.45 per cent is attractive compared with big banks and building societies — although you can do better with newer banks. The NS&I bonds are also only on sale online.
The top one-year fixed-rate on offer for those willing to go online and who want monthly interest is 1.8 per cent from Charter Savings Bank — or £15 a month on each £10,000.
But in the High Street’s traditional banks and building societies, the best that you can do is 1.34 per cent (around £11 a month) from Virgin Money, or a much lower 1.19 per cent (just under £10 a month) from Skipton BS.
If you tie up your money for three years, the NS&I 2.15 per cent fixed-rate is the top deal.
On £10,000, it is £12 a month on the one-year deal, or £17.90 a month on the three-year deal.
With rates so low, experts advise against tying in for more than a year, because interest rates are likely to rise in this time and you could lose out.
Economists differ on when the next rise in Bank of England base rate from its current 0.5 per cent will materialise.
Some predict that higher growth in the economy could lead to another rise in interest rates in the next few months.
Paul Hollingsworth, senior UK economist at Capital Economics, says: ‘We expect base rate will start to rise in May, with three hikes bringing it to 1.25 per cent by the end of next year.’
He predicts it will rise further, to 1.75 per cent, by the end of 2019.
But forecasters at EY Item Club and Pantheon Macroeconomics don’t expect it to budge until late next year.
If you think rates are going to rise, you could go for a so-called tracker bond. Here, your income will rise if the general level of interest rates goes up during the life of your bond.
The Family BS two-year tracker bond is available online, by post or through its one branch in Epsom, Surrey. At 2.04 per cent, it is the top two-year deal — or £17 a month on each £10,000.
But if base rate rises, so will your return, as it guarantees to move in line. For example, a 0.25-point rise in base rate would raise your rate to 2.29 per cent, which comes to £19 a month.
Any income you get on fixed-rate bonds could be tax-free, so long as you do not bust your personal savings allowance.
This lets basic-rate taxpayers earn their first £1,000 of interest a year from all their savings (excluding cash Isas) without paying tax. Higher-rate taxpayers get a £500 allowance.
Tax-free cash Isas pay less interest. The best you can do for one year is 1.4 pc from Virgin Money, or 1.71 per cent for two years with Charter Savings Bank.
Easy-access cash Isas are even worse: 1.09 per cent from online bank Shawbrook, or a lowly 0.9 per cent High Street rate from Skipton BS.
For its regular easy-access Isa, Virgin Money pays 1.35 per cent on its Double Take E-Saver — but restricts you to two withdrawals of your capital a year.
In the High Street, the best you can do is Coventry BS’s taxable 1.1 per cent.
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