Fixed Bonds

Oaknorth has a 3 year fixed at 1.91%, I've never actually heard of them before.

Arian_Woman wrote: »

Thanks EachPenny for a clear & well explained answer. Def food for thought. :T

Thank you Arian Woman

Just to be clear though, I'm not saying the NS&I isn't good for some people - I've opened one myself, but only because I have other money at 2% and below which I know will be enough to cover my investing/spending needs over the next three years, so the risk I'll need to take anything out of the NS&I £3k is minimal.

Arian_Woman wrote: »

I also feel confident that I won't need to withdraw over the next 3 yrs.

Sorry, maybe I muddied the waters in trying to make things clearer The relevance of the 3 years is about the possibility of getting a higher than 2.2% interest rate on the £3000 during the next three years, not necessarily about needing to use the money for something else.

If you had the option of moving the money out of the NS&I bond to a different account paying more interest during the 3-year term then you have to pay a penalty of 90 day's interest, which means the effective rate you'll get is less than 2.2%.

A current account - lets say BoS Vantage - pays 2%. That rate isn't fixed and could go down, but there is no penalty for withdrawal. So if the rate does go down, or something better comes along, you just move the money elsewhere. But you have 'banked' the 2% interest earned on the money in the time it is in the account, nothing will be deducted.

So the best strategy is to find the account paying the highest rate (currently Nationwide FlexDirect) and fill that first, then the next highest rate and so on. In theory the NS&I 2.2% bond would come before the current accounts paying 2% - however because of the fixed-term you have to weigh the additional 0.2% against the potential loss of opportunity, or loss of interest.

In my case, what I'm saying is that if things stay roughly as they are, then the way I have my money spread I think it unlikely that I'll have everything at 2.2% or above within the next three years, so there will be no urge to take money out of the NS&I bond before then. On the other hand, if rates improve to the extent that 2.2% looks bad, then I probably won't mind taking the 90 day loss of interest hit

So the NS&I at 2.2% is good - so long as you have exploited all other options, and have sufficient money earning under 2.2% to mean the NS&I £3000 can remain untouched for the whole of the 3-year term.

Hope that is a bit clearer.

As for the Vanquis rate, I did notice the reduction. Unfortunately that is the way things seem to be at the moment - a good rate comes along, but doesn't stay there for long.