Fixed Rate or Retail?

Savers looking for higher returns often opt for a fixed rate bond, where their cash will be tied up for a set period of time, but will earn up to 4.5 per cent in interest, higher than any high street bank account.

An even higher return can be achieved by investing in a retail bond. These are similar to fixed rate bonds, although a little more risky, and can earn savers as much as 7.5 per cent on the money they put away.

Retail bonds come from companies of all types and are chiefly aimed at private investors, whereas a fixed rate bond is essentially a bank account for people with a lump sum to save. The key difference, and the main reason why retail bonds are considered more risky, is that they are not covered by the financial services compensation scheme, while fixed rate bonds are.

Fixed Rate Bonds

These are based on having a lump sum set aside for a predefined length of time, generally 1-5 years. In return for leaving the money alone savers receive a fixed interest rate that should be higher than an instant access account.

Withdrawals are usually limited or disallowed completely during the fixed term. Minimum deposits vary greatly, starting around £500. The longer you are able to commit to, the better rate you are likely to get. The fixed rate is a mixed blessing, as it is useful knowing in advance how much you will receive, but if market interest rates go up you could end up losing out.

Retail Bonds

These are issued as a way for companies to raise money quickly. Rather than an account they are a promise from that company to pay a fixed rate for a set period of time, at the end of which the initial capital is returned.

Retail bonds can be bought straight from the company issuing them or traded like shares in the market place, which provides a way to access the cash during the bond, although it can only be sold for its market value.

The lack of FSCS protection afforded them means that if the company goes under while the bond is in place some or all of the money could be lost. Both are viable options for savers looking to stash a lump sum for a longer period of time, the choice comes down to the individual’s willingness to take a risk..

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