What's the difference between "Fixed Deposit" and "Fixed Rate Bonds"

dannahaz

Hi everyone, hope you can help.

I am considering investing a lump sum in Ruffler Bank (which I found out about reading through some threads in this forum). I'm happy for this to be tied up for about a year.

When I went on to their website, I wasn't sure whether I should choose a "Fixed Rate Bond" http://www.rufflerbank.co.uk/savings/fixed_rate_bonds.php (which I know means that the money is tied up for the length of the fixing), or their "Fixed Deposit". http://www.rufflerbank.co.uk/savings/fixed_deposits.php

The interest rates on both are very similar.

Could anyone explain to me what the nub of the difference between the two types of investment please?

Also, is there any reason why Ruffler is never mentioned in Martin's best buys?

Thanks in anticipation

ReportInvestor

Their own t&cs seem to suggest they are similar, if not the same:

"....Fixed Account' and/or 'Fixed Rate Bond' means an Account the balance of which may not be increased or reduced until the expiry of the period for which the deposit has been placed..."

They also describe fixed deposits as:

"...A fixed amount for a fixed period at a fixed interest rate..."

Which equals my definition of a fixed rate bond.

dannahaz

Thanks for that RI - it caused a lightbulb to go off in my head.

Given that, in both cases, the amount of the deposit is fixed, I wonder if the difference is in what can happen to the interest rate applied? i.e. "Fixed Rate Bond" means the interest rate is also fixed, but in the "FIxed Deposit" the interest rate could vary.

Any views anyone?

PabloNeruda

Hi. I used to be a currency trader in the City. A fixed deposit is a fixed amount for a fixed period at a fixed interest rate. A Fixed Rate Bond is also for a fixed term and interest rate, but the amount is variable and interest is calculated each day on the cleared balance.

ReportInvestor

In both cases you can't add to or subtract from your money.

And Ruffler bank will take different sums for their fixed deposits.

"....Minimum balance £10,000 - maximum deposit £250,000.."

PosterBoy77

I have had some discussions about these slight differences with Ruffler Bank myself as I am looking at saving some money with them. In essense PabloNeruda is correct about the differences but Ruffler Bank seem to do it the other way round. The Fixed Deposit account allows you to deposit money with up to a 12 month notice period and the Fixed Rate bond is for a fixed period of time, e.g matures after 12 months. The interest rate is Fixed in the Fixed Rate bond, but is variable in the Fixed Deposit. With rising interest rates I would suggest the Fixed Deposit is the best account to go for.

It is also best to always go for the 12 month Fixed Deposit, even if you need some of the money earlier, as Ruffler Bank will allow you to get access sooner for a fee. The fee is essentially the difference in interest that you would have earnt by taking out a shorter notice period account applicable to the notice you have given and what you should have had. However any money not taken out will earn the full amount of interest. An example you be for someone to save some money in a 12 month Notice Deposit account, but 3 months later finds that in a further 3 months time they actually need half the money out of it again. Ruffler bank will let you have the same amount of interest on the money you are taking out as if you had taken out their 3 month notice account, and charge the rest as a fee, but only on the money being withdrawn. The money being left in the account will earn the full 12 month notice rate.

ReportInvestor

mikael wrote:

The interest rate is Fixed in the Fixed Rate bond, but is variable in the Fixed Deposit.

If that's the case, then Ruffler Bank need to amend their website.

"...A fixed amount for a fixed period at a fixed interest rate.." [The same wording for fixed rate bonds and fixed desposits.]

The main difference looks to be that interest is added at intervals and maturity on the Fixed Rate Bond, but only on maturity on the Fixed Deposits.

Thanks to Mikael for the info on how Ruffler Bank operates early withdrawals.

PosterBoy77

Appologies, I was getting confused between the Notice Deposts and the Fixed Deposits. I came to the conclusion that the Notice deposits were best when interest rates were rising and Fixed deposits if not, as you can get money out again if needed. The advice I gave earlier about variable interest applies to the Notice Deposit, not the Fixed Deposit! ReportInvestor is right about the differences between the Fixed Deposit and the Fixed Bond. Sorry for the confusion.

dannahaz

Me again. This is the reply I got from Ruffler:
ur Fixed Bonds and Fixed Deposits are both fixed. However they operate in different ways as follows:

Fixed Deposits

Funds are placed on deposit for a period of time and the original amount invested plus interest are available only upon the maturity date i.e. either 3, 6 or 12 months from the date of original investment. The only paperwork provided is confirmation of your investment at commencement, the interest rate, the term of investment and the sum in interest due on the maturity date.

Fixed Bonds
Funds are placed on deposit for a period of time and are not available for withdrawal until the maturity date. However, interest is accrued quarterly on the account and on maturity. Interest may either remain on the account or be withdrawn by cheque each quarter and upon maturity providing the funds invested are below £50,000. Some customers choose to withdraw interest because they use it as income for living expenses. If the funds invested are £50,000 or over, all interest must be withdrawn quarterly by cheque or transferred into another account. This is because HM Revenue & Customs regulations permit us to pay interest without tax on fixed deposits of £50,000 or more but that interest cannot then be added to the account. Untaxed interest may not be earned on the untaxed interest added to the account. Quarterly statements are issued showing the changes to the balance on a bond.

I trust this helps to clarify but please contact me on my below direct line if you have any further queries.

Um. I think that means that the difference is with the interest. In the fixed deposits, you can't get your hands on the interest until maturity. With the bond, you can draw the interest of you wish.

I think.

free4440273

i'm getting even getting more confused (pardon my ignorance): i have a three year fixed rate bond with nationwide, and i know for sure that the rate of interest is fixed for those three years (in other words, not variable)...

cheerfulcat

This confusion isn't helped by the financial industry's misuse of the word " bond ". None of these accounts have anything to do with bonds; they are all deposit accounts of some sort, with different attributes depending on the institution offering them.