Sticking with NS&I growth bonds?

rdtrdt

The T&Cs seem pretty straightforward, regarding the 90 day loss of interest penalty for early closure. I've spoken to NS&I today to clarify that it's as straightforward as it appears to be. I'll probably roll into a 5 yr fix, with the expectation I'll close it early (to fund a potential house move in the 15 months+ timeframe).

I suspect there may be a bunch of other fixed term accounts out there which permit early access, and where despite the penalty imposed (whether it be N days loss of interest, or a fixed penalty fee), the account it still very attractive compared to alternatives.

oldfella

not convinced - if its a 1 year you can get 2.8 / 2.9 instant access, 2 year fixes are around 3.5%, and 3 year fixes are around 4%

brandlib

my wife has bond maturing early nov. withdrawing as rate not good enough

rdtrdt

oldfella wrote: »

not convinced - if its a 1 year you can get 2.8 / 2.9 instant access, 2 year fixes are around 3.5%, and 3 year fixes are around 4%

If you have certainty on when you need access, then I agree. But if you only have a large window in which you think access may be required (such as mine of between maybe 15 months to 30 months time), and then need immediate access at that point (i.e. when a suitable house is found), then it's not so bad an option.

Can you see a better alternative?

I can see one better alternative myself, and that's M&S Money 3yr fix at 3.5%, but with early access on a fixed fee of £100. On large balances, the fixed penalty leaves the account still looking very attractive. But I'm at the FSCS limit with M&S already on a similar product, so other options are of interest to me.

rdtrdt

oldfella wrote: »

not convinced - if its a 1 year you can get 2.8 / 2.9 instant access, 2 year fixes are around 3.5%, and 3 year fixes are around 4%

From rough calculations, this 90 day loss of interest means that you should achieve effective interest rates as follows:-

close account at:-
6 months - 1.95%
12 months - 2.9%
18 months - 3.25%
24 months - 3.4%
30 months - 3.5%

With the benefit of (one off) access to the money (e.g. for house move), that doesn't seem too bad a result in comparison to what else is currently available, if you are planning to hold it for 15 months to 2+ years.

For someone needing access in those timeframes, are there better options available?

vigman

rdtrdt wrote: »

From rough calculations, this 90 day loss of interest means that you should achieve effective interest rates as follows:-

close account at:-
6 months - 1.95%
12 months - 2.9%
18 months - 3.25%
24 months - 3.4%
30 months - 3.5%

With the benefit of (one off) access to the money (e.g. for house move), that doesn't seem too bad a result in comparison to what else is currently available, if you are planning to hold it for 15 months to 2+ years.

For someone needing access in those timeframes, are there better options available?

I'm echoing that last statement as I have just completed the withdrawal form (but not posted it!!) for my NS&I bond with an eye to the M&S 3 year offering with £100 penalty??

TIA

Vigman

DavidAC

When calculating the effect of the penalty you have to consider your tax situation. The 5 year at 3.9% will give a net of 20% tax rate of 3.12%. My understanding is that the penalty is deducted at the gross rate. So if you withdraw after one year you will receive a return of 3.12%, but loose 90 days at 3.9%. If you are a higher rate tax payer it is even worse.

So if you withdraw £10K after one year you will receive £312 interest but loose £96. A net return of 2.16%, or about 2.7% gross.

Someone please check these figures in case I have it wrong.

soulsaver

DavidAC wrote: »

My understanding is that the penalty is deducted at the gross rate. So if you withdraw after one year you will receive a return of 3.12%, but loose 90 days at 3.9%. If you are a higher rate tax payer it is even worse.

So if you withdraw £10K after one year you will receive £312 interest but loose £96. A net return of 2.16%, or about 2.7% gross.

Someone please check these figures in case I have it wrong.

That's correct maths. Issue raised in post #8 but not apparently noted by some subsequent posters.

2CBG

Thanks Soulsaver & DavidAC - with the tax implications on the penalty - not quite as good. I have already renewed my first bond for 5 years, but have another maturing soon, so need to rethink at the time.

soulsaver

NS& I got their finger out... my growth bond matured yesterday 3/11 and the funds with all interest appeared in my First Direct a/c this morning!
Well done them. :T
(Shame on 'em about the Index Linked certs tho...:()