Kaupthing Edge and ICESAVE - 36 months fixed rate bonds

KeithEssex_2

Has anyone noticed that the Kaupthing Edge 36 Month Bond has maturity interest whereas the ICESAVE has annual interest ?

So whilst the Kaupthing Edge has the significantly higher Gross Interest rate it will only yield a slightly higher return.

ICESAVE - Annual Interest @6.50% quates to AER 6.50%
Kaupthing Edge - Maturity Interest @7.16% equates to AER 6.70%

Also, the ICESAVE account interest will be spread over three tax years whereas the Kaupthing Edge bond will fall in just one tax year.

This could make quite a difference when chosing between these two products.

Milarky

The AERs are the thing to compare - and the Icesave is higher of course, even ignoring compounding. But there is one benefit to this - which is that for two of the three years no tax is taken - so interest in earned on the taxable portion. Thusly

Kaupthing: non taxpayer 6.5 gross, basic taxpayer 5.2 net, higher taxpayer 3.9 net
compounded annually

Icesave:
non taxpayer 6.7 gross
basic taxpayer +17.18% after 3 years therefore 5.42% 'net' required to compound = 6.78 'gross' if compounded annually
higher taxpayer +12.89% after 3 years therefore 4.12% 'net' required to compound = 6.87 'gross' if compounded annually

KeithEssex_2

Milarky wrote: »

The AERs are the thing to compare - and the Icesave is higher of course, even ignoring compounding. But there is one benefit to this - which is that for two of the three years no tax is taken - so interest in earned on the taxable portion. Thusly

Kaupthing: non taxpayer 6.5 gross, basic taxpayer 5.2 net, higher taxpayer 3.9 net
compounded annually

Icesave:
non taxpayer 6.7 gross
basic taxpayer +17.18% after 3 years therefore 5.42% 'net' required to compound = 6.78 'gross' if compounded annually
higher taxpayer +12.89% after 3 years therefore 4.12% 'net' required to compound = 6.87 'gross' if compounded annually

Thanks - I hadn't considered the fact that interest is earned on the taxable portion like that !! :T

free4440273

I am slightly confused now, as I was interested in the 36 month bond also: the gross is 7.16; I don't want monthly interest, just the accumulation of interest after three yrs: therefore is the net most important here? thanks
http://www.kaupthingedge.co.uk/OurProducts/InterestRates.aspx

KeithEssex_2

free4440273 wrote: »

I am slightly confused now, as I was interested in the 36 month bond also: the gross is 7.16; I don't want monthly interest, just the accumulation of interest after three yrs: therefore is the net most important here? thanks
http://www.kaupthingedge.co.uk/OurProducts/InterestRates.aspx

Apologies - I had the two sets of rates the wrong way around in the original post (corrected now).

My take is that the AERs are in effect very similar (6.70 versus 6.50) and so the real issue is your liability to tax over the 3 year period. If you can get it to be paid in a lower taxed year then you could get a huge benefit (e.g. 20% rather than 40% tax).

free4440273

^I am indeed a 20 per cent tax payer, so perhaps the three yrs KEdge at 7.16 is best??

KeithEssex_2

free4440273 wrote: »

^I am indeed a 20 per cent tax payer, so perhaps the three yrs KEdge at 7.16 is best??

It would depend upon how near you are to the higher rate tax band.

For example - if receiving all of the interest in one year might push you over this limit it may all be taxed at 40% whereas if spread over 3 years it would be 20%.

If this isn't likely to affect you then the highest AER may be the driver.

Two final points though :-

1. You should look at the differences on terminating the bond early in case you should ever need to do so. ICESAVE does not allow you to cancel such a bond whereas Kaupthing Edge will allow you to do this but at a "deal break rate" (i.e. a penalty fee).

2. Kaupthing Edge is fully back by the FSCS for the £35,000 where ICESAVE use the Passport scheme for the first 20k Euros.

Personally I would therefore go for the Kaupthing Edge 36 months account.

free4440273

^thanks keith: i have no intention of terminating the bond early (never been a problem for me with my previous bonds throughout my lifetime); i want to let the bond run its three yr duration and then collect the interest and the existing capital; the fact that KE is fully backed is reassuring (I want to invest £5000). Any other advice, with this info attached, would always be appreciated. Once again, thank you:) [I have applied online and am awaiting confirmation of my details]. One other thing: do KE issue a bond certificate of any sort (I know it's an online account, but would be reassuring).

KeithEssex_2

free4440273 wrote: »

^thanks keith: i have no intention of terminating the bond early (never been a problem for me with my previous bonds throughout my lifetime); i want to let the bond run its three yr duration and then collect the interest and the existing capital; the fact that KE is fully backed is reassuring (I want to invest £5000). Any other advice, with this info attached, would always be appreciated. Once again, thank you:) [I have applied online and am awaiting confirmation of my details]. One other thing: do KE issue a bond certificate of any sort (I know it's an online account, but would be reassuring).

The section entitled "Managing the account" (under FAQs) seems to imply that you won't with any fixed term deposits:-

"6. Will I receive a statement of balance by post to my home address?
Yes, we send you a paper statement on your Kaupthing Edge savings account on an annual basis. All information about your Kaupthing Edge Term Deposit account is available when you log in to Kaupthing Edge."

It might possibly appear on the annual statement for the associated variable rate Savings Account.

I only have the Savings account at the moment and I have had very little paper correspondence from them by post so they might do it for you but I think it's 50-50. Either way your deposit is safe as you can take a printout a statement as evidence.

Regards - Keith

LongTermLurker

free4440273 wrote: »

One other thing: do KE issue a bond certificate of any sort (I know it's an online account, but would be reassuring).

No but you can print out your statement, which would give you the same effect.

free4440273

^thanks both:) think i'm gonna go with them: the fixed rate 36 month bond @ 7.16. will await arrival of confirmation email monday (i hope.