Leeds Building Society has launched a new fixed-rate monthly income bond paying 4%, but savers will have to lock in for the next 10 years to reap the benefits.
Available from today, the bond pays a monthly return worth 4% per year on investments between £10,000 and £1,000,000 (£2,000,000 for joint accounts).
Monthly interest is paid on the last day of each month until December 2023, and must be paid out to a designated account or transferred to another account with the society.
As is customary for fixed-rated products, no withdrawals are permitted during the term. Savers will have to be sure that they are able to cope without their funds for the next decade.
Kim Rebecchi, the society’s sales and marketing director, said that offering a monthly income from savings offered an important distinction on existing products in the market.
“We have looked at the savings market and, in this historically low interest rate environment where many customers are on fixed incomes, there is a need to generate an income from their savings," she said.
"At the end of the product term, customers will have benefited from an income totalling 40% and still have all their capital.”
The bond’s gross return of 4% (3.2% net) is equivalent to eight times the Bank of England base rate. It surpasses the seven-year bonds from Secure Trust Bank, FirstSave Bank and the Skipton Building Society, which are currently offering between 3.50% and 3.52%.
Stick or Twist?
The new bond poses an interesting dilemma for savers. Industry experts traditionally warn against long term fixes in case any changes to market conditions leave savers trapped with uncompetitive deals.
In April 2011, the average five year bond was worth 4.17%, while in 2009, they were returning as much as 5.45%. This demonstrates how radically circumstances can change for savers given the state of the economy and other influencing factors.
And some changes may be afoot in the near future, if the Government meets calls to boost savers' tax-free allowance in the Autumn Statement next month.
However, savers have invested £37 billion into long-term bonds in their search for better rates, according to Leeds, as the performance of savings accounts continues to slide.
And regardless of future interest rate movements and their impact on the performance of savings accounts, basic-rate taxpayers who choose to invest in the new Leeds bond will be insured against the effects of inflation as long as it remains below 3.2%.
The Leeds 10-year fixed-rate monthly income bond is available from Wednesday 20th November.
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