Anyone use Fixed Rate Bonds?

triplea35

Malthusian wrote: »

Albermarle may be thinking of Castle Trust, which only pays about half a percent per annum more than the best-buy FSCS-protected bond. Which investors could misinterpret as meaning it is also an FSCS-protected bond. And occasionally its ads pop up when you search for terms like "fixed rate bonds". It is in fact an ultra-high-risk corporate bond that could lose all your money. Or at least it did a year or so ago. Needless to say the OP should go nowhere near.

Totally agree, I sometimes use the moneyfacts site for a comparison of best rates on offer. On the page listing best fixed rate bonds an advertisement always appears for Castle Trust, offering higher rates but also describing them as fixed rate bonds. Can understand how people can be easily misled unless they read the small print.

I know technically the fixed rate term savings accounts are not bonds but that is how they are commonly referred to now.

kidmugsy

Albermarle wrote: »

Be careful, that from other threads , there are some fixed rate bonds around , paying maybe 0.5% above normal that are not normal savings accounts. They are some kind of actual bonds rather than a deposit account .

Well said.

The word "bond" is so ambiguous it might be better not to use it -
building society bond, government bond, corporate bond, single premium life insurance bond, retail bond, mini bond: all different things. There are others: this Barclay's "bond" catches my eye but it's different again, with monthly withdrawals allowed.
https://www.barclays.co.uk/savings/bonds/3-year-flexible-income-bond/

The OP is presumably referring to fixed-term, fixed-rate, no-withdrawal-until-maturity deposit accounts. It's a terrible mouthful but with the advantage of being descriptive and unambiguous. What's needed is a better word for these beasts. Fat chance!

Malthusian

triplea35 wrote: »

I know technically the fixed rate term savings accounts are not bonds but that is how they are commonly referred to now.

Technically a bond is a promise to repay your money at a specified date in the future, with a given (usually fixed but not always) interest rate. Fixed-term deposits are bonds.

There is nothing wrong with generic terms like "bond". The English language has the largest and most complex vocabulary in the world and we still use the same noises to mean a huge variety of different things. The human mouth isn't capable of enough different sounds to give every single different concept a different word, not without making all nouns and verbs at least twenty syllables long, in which case the average human memory wouldn't get anywhere near being able to remember enough terms to be able to communicate in the world of finance.

Most people do not need to know the difference between an FSCS-protected fixed-rate deposit and an unregulated ultra-high-risk corporate loan note because we spend a very large amount of money on a regulatory system which is supposed to stop ultra-high-risk loan notes reaching the general public in the first place. Unfortunately some slip through the cracks.

bostonerimus

A fixed rate bond ladder is a good way to get the most out of a cash allocation and can be a useful place to put a retirement cash buffer, just make sure you have enough easily accessible cash for emergencies.

jimjames

Malthusian wrote: »

we spend a very large amount of money on a regulatory system which is supposed to stop ultra-high-risk loan notes reaching the general public in the first place. Unfortunately some slip through the cracks.

Unfortunately the current system no longer seems to be fit for purpose when unregulated products can promote to consumers as if they are regulated unless you are knowledgeable and read the small print. These then slip between regulators and neither wants to know. I think it's quite a significant issue at the moment rather than just some slipping through the net.

Malthusian

In the FCA's eyes it's an insignificant issue. Most of the issuers of these unregulated products have only a few thousand investors at most. An unregulated investment can be counted as successful if it raises somewhere around £5 million, which sounds like a lot, but if you assume a typical individual investment is around £10,000 (all of these figures are based on my anecdotal observations) that's 500 people. From the perspective of the FCA, that's nobody.

They Who Must Not Be Named claim to have raised about £215m (their last audited figure was £60m but that was back in April 2017) but that's still likely to represent no more than five figures in investor numbers. From the number of times they get mentioned on this forum, you might get the impression that loads of people are investing with them, that everyone and their granny are seeing the adverts and investing in the bonds, but the reality is that it's a tiny minority compared to the 60-million-odd who use the regulated sector.

For perspective, Equitable Life (which nobody did anything about until it collapsed) had billions under management and the taxpayer had to write out a £1.5 billion cheque. $18 billion was lost in the Madoff fraud.

Obviously they're not insignificant if you happen to be one of those who invests in them and then lose all your money. I happen to agree with you that the FCA should do more, but we're not in charge.

snowqueen555

https://www.fordmoney.co.uk/savings-products/fixed-saver

2%, seems like a good offer, and by good I mean the best rate 1 year bond right now?

Thrugelmir

Tesco offer 1.91% for a year and 1.96% for 15 months

Rates are edging upwards. 15 months was 1.94% a few weeks back.

Now that the BOE's funding for lending scheme (for mortgages) is having to be repaid. Lenders are finally having to source deposits from elsewhere. BOE lent 127 billion in total. All has to be repaid within 4 years commencing from March 2018. Hence why many 2 year mortgage deals look cheap. There's still cheap money in the system. Time is ticking away though.

kidmugsy

triplea35 wrote: »

We still feel the need to use our ISA allowances each year. Also being shy of further investing at the moment we are putting them in fixed rate bonds.
It is annoying though that a one year fixed rate bond in a Cash ISA is around .5% less than in normal accounts.
Thats around 25% less interest, £200 on our joint allowances.

If you don't like the T&Cs buy a different product.

OldMusicGuy

I use a combination of Santander, Ford Money and fixed rate regulated bonds for our cash that will cover the next 5 years. I haven't gone further out than 2 years with my fixed rate bonds as I feel interest rates are more likely to go up, so I didn't take any 3 or 5 year options.

If you plan to spend the cash in the short to medium term rather than invest it, inflation isn't that relevant because you can control your own personal inflation rate. However, if you are going to keep it sitting around for more than 10 years, you need to get over your fear of investing. Inflation will be an issue in the longer term.

The other issue is tax. You only have £1,000 tax free allowance for interest, so if your interest is more than that the effective rate goes down (that's why cash ISAs have a lower interest rate). I am retired and don't pay tax so I can earn up to £6,000 in interest before paying tax on it (unless the budget changes things....).