5% on year-long fixed accounts !

Moviemakers

There is an article in the MSE suggesting its possible to obtain 5% on £100,000 deposited in year-long fixed accounts......... can anyone please tell me who is offering such rates..... The article appears under the heading "Do you live off savings interest?"

When using fixed rate savings, you won't usually get paid monthly interest. Therefore many who rely on interest earned from savings as an income stream don't fix, even though they're paying higher rates. Yet there's a workaround.

Here's an example (ignoring tax for ease of explanation)...

You've £100,000, and can get 5% in a year-long fixed account and 3% in an instant access account. You'd like roughly £5,000 of interest from these savings to supplement your income.

Put £95,000 in the fixed account, and £5,000 in the instant access. Then spend the instant access money over the year, knowing the £4,750 interest earned in the fixed account will make up for it. Then you're effectively getting the high rate and spending the interest.

missile

I have no idea where one would get 5% savings return, but surely you would need £105,000 to make your example work.

I would not feel safe having £100,000 in any one bank, and definitely not in some Indian / Icelandic or Nigerian bank.

Zanderman

I don't think there are any 5% accounts at the moment - the example given is just that, an example. It's the principle of the thing that's being demonstrated.

Best accounts at the mo seem to be about 3%, unless you want to try peer-to-peer (http://www.moneysavingexpert.com/savings/peer-to-peer-lending), which is fascinating (much more than 5% available!), but I've not got enough to spare to experiment (there is a little risk...) so can't give a real opinion.

5% accounts do crop up now and then, though more rarely than they did - I have a 5% fixed rate ISA with Newcastle - which is just entering its third of 5 years fixed. It's been growing nicely, whilst all around it seem to be on 1 or 1.5 or worse. But I just got lucky and applied for it in a very limited time slot.

Keep an eye out for that sort of limited time offer - and don't forget Fixed Bonds (http://www.moneysupermarket.com/savings/fixed-rate-bonds/) which sometimes are available at good rates for limited times.

But, as Missile says, if you have £100K don't put it all in one place - even if most of it's protected in the Financial Services Compensation Scheme it could still be awkward if a bank failed. Spread it around in several places - I would if I had that much!

hth