Leeds Building Society has responded to competition at the top end of the savings market by raising the rates on its 5-year fixed rate bond and ISA up to 3.05%.
The rates on the market leading fixed-rate bond and ISA have both increased from 3.00% to 3.05%, nudging ahead of competition from Skipton Building Society and Secure Trust Bank for the same term.
The Leeds and Skipton ISAs (3.05% / 3.00%) are among the few products to offer returns higher than the current rate of inflation, which fell slightly to 2.7% this week.
The increase to Leeds’ fixed-rate bond, which, unlike the ISA, is subject to tax, nudges it ever closer to matching inflation. The new 3.05% five-year bond will return roughly 2.45% after tax. (Find out more about the difference between fixed-rate bonds and ISAs.)
Only one fixed-rate bond currently matches inflation after tax (Skipton, at 3.5%), but savers will have to lock away their cash until the end of the decade to achieve that kind of return.
Leeds BS nudges ahead for 5-year fixed-rate savings accounts, paying up to 3.05%.
Not oblivious to the occasional need for savers to access their cash, Leeds has also improved its parallel five-year bonds and ISAs which allow savers to access a quarter of their savings without penalty.
The ‘flexible’ five-year fixed-rate products have received a larger increase, rising from 2.75% to 2.90%.
Kim Rebecchi, the sales and marketing director at Leeds Building Society, said that the products had been timed to coincide with the large volume of fixed-term deposits that are due to mature over the coming months.
“Whilst the traditional ISA season is in March and April each year, around the tax-year end, our research showed us that circa £8.5 billion of fixed rate ISA balances mature in Q4 2013,” she said.
“It also highlighted that a further £26.7 billion of non-ISA bonds are maturing during the same period, which means that many savers will now be looking to maximise their returns.
“We had a great response to the first issues of these products, and are delighted to now increase the rate to further assist those savers looking for value, security and a return that is higher than the current rate of inflation (currently 2.7%).
Worth a Five-Year Term?
This is the million-dollar question. Recent overtures by the Bank of England have suggested that interest rates are unlikely to rise until 2016.
But experts are speculating that the rate may need to rise before this if the housing market begins to boil over.
The pace at which interest rates are expected to increase is also prompting a note of caution for those considering locking their money away for several years.
So, will savings rates begin rising to the point where 3% is soon surpassed? It is difficult to say.
But if it takes two or three years for shorter-term savings accounts to compete with inflation (for standard taxable savings accounts that means 3.38% today), is it prudent for savers to hold off indefinitely on substandard rates to see what happens?
A new infographic has shown that the cost of living is set to rise by 64% over the next twenty years. For those hoping to build their nest-eggs, the average return on standard savings accounts stands at just 0.67%.
The practice of adding introductory bonus rates to savings accounts is under scrutiny from the Financial Conduct Authority, and there is no guarantee that savers will benefit if institutions are stopped from offering improved rates to savers on a temporary basis.
Fixed-rate products offer a sense of certainty, and there's no reason why we should ignore the benefits. What other help are savers guaranteed to receive in the upcoming years as they seek to build for the future?
Keith McDonald
Which4U Editor
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