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New 4% bond for over-50s

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  • New 4% bond for over-50s


    Principality building society last week launched two- and three-year fixed-rate bonds paying an attractive sounding 4% interest, that are available to anyone over the age of 50.
    Anyone wanting to open an account will need a tidy sum, however, as the minimum investment amount is £10,000. Your money will also need to remain locked away for the full term in order to qualify for that rate - any withdrawals incur a penalty of 180 days' loss of interest.
    Andrew Hagger, from comparison website Moneynet.co.uk, warns savers to be cautious before signing up to the Principality bond, despite its tempting interest rate. "Nobody is sure when, or if, interest rates will pick up, so in a year's time this deal could prove uncompetitive," he points out. "There are other accounts available requiring lower minimum deposits and that tie up your money for a shorter period."
    ICICI bank is paying 3.9% on its one-year bond on a minimum deposit of £1,000, for example, while AA is paying 3.75% on a one-year bond with a minimum deposit of £500. "So you're not getting much more by tying your money up for an extra year with the Principality deal," Hagger adds.
    However, if you are convinced that interest rates will remain in the doldrums for the next few years, you may be happy to set aside your cash for longer. If that is the case, there are other two-year fixed-rate bond offers from Abbey and Alliance & Leicester, both paying 4.01% on a minimum deposit of £30,000.
    Also, it is worth bearing in mind that interest earned on any of these savings accounts will be subject to tax, which can soon whittle away the benefits of choosing best-buy rates - particularly if you are a higher-rate taxpayer.
    Savers should ensure that they use their full cash Individual Savings Account (Isa) allowance of £3,600 to keep as much money as possible out of the taxman's grasp before opting for one of these bonds.

    guardian.co.uk © Guardian News & Media Limited 2009 | Use of this content is subject to our Terms & Conditions | More Feeds



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