Leeds BS Fixed Rate Bond Paying 4% pa

alanq

kidmugsy wrote: »

Why didn't they do an ISA version?

If I recall correctly ISAs have to allow access, albeit with a possible penalty. Presumably the BS didn't want to offer such a rate if it thought people could abandon the account before the 10 years are up.

talexuser

Serious question... has there ever been a 10 year period, post Big Bang, where savings rates have consistently been less than 4%?

Just wondering how they have hedged this account, and how long they think QE can go on?

opinions4u

talexuser wrote: »

Serious question... has there ever been a 10 year period, post Big Bang, where savings rates have consistently been less than 4%?

Just wondering how they have hedged this account, and how long they think QE can go on?

Birmingham Midshires were paying 6% on a ten year term well in to 2009.

SnowMan

Independent article on the 4% bond

http://www.independent.co.uk/money/spend-save/the-great-gamble-of-locking-up-your-cash-8959264.html

kidmugsy

alanq wrote: »

If I recall correctly ISAs have to allow access, albeit with a possible penalty.

Excellent point! Do you happen to know whether there is a cap in how much of a penalty, or how much notice, can be imposed?

Secondly, do you happen to know what happens when the saver dies? I'm just wondering whether someone who is not a taxpayer and is in poor health has a chance to lock in 4% p.a. until death, with the cash then passing to his widow on (near) instant access

alanq

kidmugsy wrote: »

Do you happen to know whether there is a cap in how much of a penalty, or how much notice, can be imposed?

I cannot find anything specific. I have seen accounts with loss of a year's interest on a 5-year fixed term ISA. I have not seen instances of notice being required to withdraw from fixed term ISAs only penalties.

http://www.hmrc.gov.uk/isa/faqs.htm#17

kidmugsy wrote: »

Secondly, do you happen to know what happens when the saver dies?

"9.5 We can close your Account immediately, regardless of whether your investment has been accepted for a fixed term which has not yet expired, if we receive notice of your death, bankruptcy or mental incapacity"
Interesting use of the word "can" not "will".

http://www.leedsbuildingsociety.co.uk/savings/pdf/GIC_web.pdf

SnowMan

talexuser wrote: »

Serious question... has there ever been a 10 year period, post Big Bang, where savings rates have consistently been less than 4%?

Just wondering how they have hedged this account, and how long they think QE can go on?

At the risk of talking nonsense (some would say I always talk nonsense:rotfl:) I see Leeds Building Society have a 10 year fixed rate mortgage at 4.49%. So I guess if they matched up 10 years fixed mortgage loans to savings into the 10 year account that gives them a margin together with booking fees etc to cover expenses (?)

IronWolf

SnowMan wrote: »

If nothing else it is interesting to see such a product as it gives an indication as to the relative attraction of fixed rate savings accounts against government gilts of the same term.

Looking at the latest gilt redemption yields (figures at time of posting) and comparing with best buy savings account rates

5 year: 3% (e.g. Newcastle) vs 1.51% (gilt)
7 year: 3.5% (e.g. Skipton or Secure trust) vs 2.06% (gilt)
10 year: 4% (Leeds BS) vs 2.73% (gilt)

That suggests to me that gilts continue to look poor value, and savings should always be considered as an alternative to gilts (where practicalities allow).

A 10 year tie in is not appealing (who can predict 10 years ahead), so I am talking purely about comparative rates here.

I've just taken out a 3% 5 year ISA with Newcastle BS (for existing memebers only), that allows me to exit with 120 days interest penalty. You can think of that as a 1 year fixed rate account paying 2%, with an option to continue at 3% for up to 4 years.

If I keep that Newcastle account full term then I will need to get 5% pa over the subsequent 5 years to break even with the Leeds product. That may (or may not) be tough to achieve but the flexibility that the shorter term (exit option) account gives wins every time for me.

But bear in mind that people that deal in gilts have far too much money to use bank accounts, that is why the yields are so much lower.

talexuser

SnowMan wrote: »

At the risk of talking nonsense (some would say I always talk nonsense:rotfl:) I see Leeds Building Society have a 10 year fixed rate mortgage at 4.49%. So I guess if they matched up 10 years fixed mortgage loans to savings into the 10 year account that gives them a margin together with booking fees etc to cover expenses (?)

Hee hee... that's good. You could then ration the mortgages you give out to correspond to number of mugs who sign up for the 10 year savings deal.

Seriously though years ago a 10 year mortgage fix like that would have been a steal. Post QE we don't know if inflation can be controlled - they are banking on the controlled destruction of currency being less worse than a short sharp financial meltdown - which does not give me confidence they know what they are doing to get us to this stage, except to make those the very top richer and richer until it all collapses.

kidmugsy

SnowMan wrote: »

Looking at the latest gilt redemption yields (figures at time of posting) and comparing with best buy savings account rates

5 year: 3% (e.g. Newcastle) vs 1.51% (gilt)
7 year: 3.5% (e.g. Skipton or Secure trust) vs 2.06% (gilt)
10 year: 4% (Leeds BS) vs 2.73% (gilt)
.

I suppose that if someone bought the seven-year Gilt in an ISA and sold it after two years, then the "roll down" would perhaps make for a decent return. Even better, maybe, if he held it for five. Here's the yield curve.
http://markets.ft.com/research/Markets/Bonds