Shepherd's Friendly 5 year fixed bond

1socrates1

I am thinking of putting my money into a Shepherd's Friendly 5 year fixed bond. I have two concerns. I have never heard of the company and not sure if it would be the way to go. They are offering 4.75% interest, and apparently one's money is totally secure up to the limit of the offering which is £125k (never thought this was possible , thought £85k was the limit to one's protection). Another issue I have is because the Reserve Bank are keeping the rate as it is, do you think there might be better offers available within the short term?

Beddie

As it is technically an insurance policy, it has unlimited FSCS protection, so yes that is correct.

As for interest rates, you can check current rates below, but the trend is downwards. 

https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/?quick-links-first=false

Albermarle

They are a friendly society and are well known in that quite small field.

It is not a savings account. It is a 5 year investment with a guaranteed return, which is not quite the same thing.
I think the interest only pays out at the end, so no annual compounding.
It is also life assurance, so if you die it will return most, but not all of the money. That is why it is covered for more than £85K
The tax situation is different to a savings account, so you would need to look into that.

1socrates1

Thanks for your replies. I think I will go with another bank that offers a little less interest but is compounded like Close Brothers at 4.57 % for 5 years. 

FIREDreamer

Albermarle said:

They are a friendly society and are well known in that quite small field.

It is not a savings account. It is a 5 year investment with a guaranteed return, which is not quite the same thing.
I think the interest only pays out at the end, so no annual compounding.
It is also life assurance, so if you die it will return most, but not all of the money. That is why it is covered for more than £85K
The tax situation is different to a savings account, so you would need to look into that.

It should return more than your initial investment on death in order to be called an insurance contract.

Typically between 101% to 105% of the invested value.

I can’t find the details of this product - looks interesting, especially if the 4.75% might be tax free *for basic rate taxpayers).

refluxer

1socrates1 said:

Thanks for your replies. I think I will go with another bank that offers a little less interest but is compounded like Close Brothers at 4.57 % for 5 years. 

The interest on multi-year Close Brothers fixed rate bonds doesn't actually compound. They state...

Note, accrued interest is calculated daily and is payable annually and at maturity (the end of the term) into your nominated bank account.

*AER stands for Annual Equivalent Rate. It illustrates what the interest rate would be if interest were paid and added each year. Please note, interest is not compounded. Gross PA means Gross Per Annum, i.e. before tax is deducted (at the legal rate). 

1socrates1

Oh well back to the drawing board. 

Albermarle

FIREDreamer said:

Albermarle said:

They are a friendly society and are well known in that quite small field.

It is not a savings account. It is a 5 year investment with a guaranteed return, which is not quite the same thing.
I think the interest only pays out at the end, so no annual compounding.
It is also life assurance, so if you die it will return most, but not all of the money. That is why it is covered for more than £85K
The tax situation is different to a savings account, so you would need to look into that.

It should return more than your initial investment on death in order to be called an insurance contract.

Typically between 101% to 105% of the invested value.

I can’t find the details of this product - looks interesting, especially if the 4.75% might be tax free *for basic rate taxpayers).

5 Year Fixed Rate Bond | 4.75% AER | Shepherds Friendly

You are right about the insurance payout. It pays +1% on original investment for each year it has been open.
However if you had a 5 year fixed term savings account, you ( or your estate/beneficiaries) would get the original investment + accrued interest.
I think it is tax free with a few caveats.

Reaper

FIREDreamer said:
I can’t find the details of this product - looks interesting, especially if the 4.75% might be tax free *for basic rate taxpayers).

This one does state it is free of basic rate tax in the important Information document [PDF] which may make it worthwhile for some.

dunstonh

Being a life assurance plan, it falls under life assurance wrapper rules.   So, basic rate tax is considered paid as it is is internal.     This is why the return is lower than a typical Short Term money market fund.

Reaper

Considering the best 5 year fixed saving is 4.6% [MSE best buy page] and unlike those this is also free of basic rate tax this seems the best option if you are willing to tie up your money for that long.