Fixed Rate Savings: Structured Growth

Knowing what to save, and where to save it, can be an incredibly complicated business. The desire to make any money work and earn is often tempered by a fear of risk, and many savers understandably don’t want to subject themselves to potential worries and stress.

For those looking for a comfortable option, Fixed Rate Saving Bonds may offer the solution. Paying a guaranteed amount of interest over a set period of time, the rates will not change, no matter what happens to the general economy. With the interest rates offered by Fixed Rate Savings Bonds rising steadily, renewed focus has been placed on them as a great way to invest lump sums in a way that allows for structured growth and future planning.

Knowing what you will earn

The most important aspect of planning around savings is knowing what you will earn; something that is the very essence of a Fixed Rate Savings Bond. With the interest rate being apparent before the bond is opened, calculations can be made as to exactly how this will represent itself each month, each year, and at the end of the fixed period. Knowing exactly what money will be available at the point of maturity allows planning for any re-investment, should it be desired. As a Fixed Rate Savings bond requires the money to be locked away for the set period, there are no surprises or chances; the final amount can be accurately predicted.

Planning

Being able to accurately predict what the returns will be means that planning is made easier for other aspects of the investor’s life. Financial commitments and obligations that might not be occurring when the fixed rate bond is taken out might be set and anticipated for further down the line. Things can be anticipated such as weddings, house purchases and retirement, and money invested a suitable time in advance. Making the calculations as to how much is needed and when it may be needed can guide how much to invest, when to do it, and for what period, based on predictable returns. The potential to make plans based exclusively around the interest that comes in is also possible, especially if arrangements are made so that said interest is paid into a separate account. With some careful planning and organisation it may be possible to reinvest this interest and make it work for itself.  

Choice

Structured growth needs a flexible attitude to savings; a ‘one size fits all’ approach doesn’t allow for best results when looking for regimented and controlled returns. From this point of view, Fixed Rate Bonds offer great opportunities to exercise choice, due to the fact they are usually offered over one to five years. The general rule is that as the term of the bond increases, the interest does likewise. How long to tie the money up for, and whether you wish to do so and take advantage of higher interest rates is entirely a matter of personal choice, and provides further chance to sculpt future plans. With SynerGIS bonds, interest is paid every 6 months, allowing you to optimise your annual personal savings allowance.

Suitability for different scenarios

Fixed Rate Bonds can be suitable for a variety of different people, in different scenarios. The most important factor that savers need to consider is of course whether they can afford to not have access to a set amount of money for a specific time. SynerGIS fixed rate bonds provide flexibility with regards to the amount invested, allowing investors to invest from £1,000 to £250,000 per bond. Multiple deposits can be made up to the value of £250,000 per bond, enabling investors to consolidate savings held in other accounts which may not be offering a competitive level of interest. As referenced above, this can tie in with taking a more comfortable and realistic approach to forecasting earnings and planning for the future. Fixed Rate Bonds can also be highly suitable for those looking at their retirement options, and structured accordingly. Setting up money to be released at a point in line with retirement wishes can provide stability and reassurance.

Things to be aware of 

Considering how interest rates might change in the wider economy is something that may impact on the length of Fixed Rate Bond an individual chooses. If there is an anticipation of expectation that interest rates may well remain low for a lengthy period of time, then a longer term bond may appear more attractive. The reverse is also true. If savings are locked away in a five year bond and interest rates start rising for instance, no benefit of this will be felt.

Another factor to bear in mind in terms of structuring and calculating growth is what happens to the savings once the Fixed Rate Bond has finished. SynerGIS give investors the option to re-invest their bond amount, or have it repaid into their bank account.

The taxation of Fixed Rate Bonds must also be considered. If the bond is not an ISA, the Personal Savings Allowance, introduced in April 2016, dictates that basic-rate taxpayers may earn the first £1,000 of interest on their savings tax free, per tax year. This is reduced to £500 for those who are high-rate taxpayers. Thinking about how this may impact on the final returns is necessary and may form part of any consideration as to what length of Fixed Rate Bond may work best for the saver.  

Provided for informational purposes only. Not designed as advice. Speak to your IFA or tax advisor for advice tailored to your individual circumstances.