Money Insider: Savers should lock in on Close Brothers bonds

Savers coming off existing fixed-rate bonds are anxious to lock in to the best rates without having to lose access to their money for an extended period. Those who plumped for a three-year bond back in 2008 will have been getting a return as high as 7 per cent AER in some cases.

However, to secure the best deal on offer at the moment it means tying your cash up for five years to earn 4.7 per cent AER with Yorkshire Bank.

On Monday, Close Brothers stormed to the top slot in the best buy tables with its "Premium Gold" two-year fixed-rate bond paying 4.25 per cent AER. Under the terms of this account, interest is paid annually and the account has a minimum investment limit of £10,000 and a maximum of £10m. For savers not comfortable with locking their funds away for five years this new deal will be very attractive, particularly as it is currently paying a higher return than the best four-year fixed-rate bond on the market (BM Savings and State Bank of India both at 4.2 per cent AER). At more than 0.85 per cent above the average two-year fixed-savings rate and a quarter point ahead of its nearest competitor, there will be no shortage of takers for this product which means its shelf life may be limited. To put this new deal into perspective, it's the highest rate seen on a two-year fixed-rate savings bond for 20 months, since ICICI Bank UK was offering the same 4.25 per cent AER back in March 2010. You have to go back exactly two years to find a higher two-year rate – courtesy of AA Savings' 4.35 per cent in November 2009. For those not familiar with the Close Brothers name, it is authorised by the FSA and a member of the Financial Services Compensation Scheme, therefore savings balances up to £85,000 per deposit holder are fully protected.

Loan rates race nears 6 per cent low

The battle between personal loan providers continues to rumble on, which is great news for borrowers. Sainsbury's Finance and Nationwide Building Society have been the front-runners in the loans race for most of this year, with the latter cutting its rate to its lowest ever level at only 6.1 per cent APR.

Twelve months ago, the best deals were priced at around 6.7 per cent APR, so there's been some significant price cutting taking place in an effort to both boost take-up levels and meet annual targets.

It's possible we may see rates dip below 6 per cent before Christmas, something we haven't witnessed since May 2007.

While the cost of larger loans is falling, those looking for only £1,000 to £2,000 still face having to pay rates approaching 20 per cent in some cases. Also lenders are still very choosy when assessing applications for any type of borrowing, so a tip-top credit rating is a must if you want to secure a best-buy rate.

Index-linked savings may not deliver best returns

There was some minor relief for savers on Tuesday when the Office for National Statistics issued the October inflation data.

The RPI measure edged down from 5.6 per cent to 5.4 per cent in what was predicted to be the first in a succession of reductions if the City experts and a certain Mr King are to be believed.

So what does this mean for people thinking of sheltering some of their savings in inflation-linked savings bonds?

Both the Post Office and BM Savings offer savings bonds linked to RPI for both a three-year and a five-year term. More recently, Santander has joined the fray, offering a slightly different six-year deal.

The conundrum is that even though these products protect you against future increases in the cost of living, they don't guarantee to deliver the best return.

While inflation is expected to drop back sharply in the first part of 2012, the longer-term picture is less clear; however, you could get a better return with a standard fixed-rate savings bond.

As rates stand, the five-year Post Office inflation bond will equal the rate on the five-year bond (4.7 per cent) as long as RPI is no lower than 3.7 per cent, and with BM Savings as long as RPI doesn't dip below 4.2 per cent.

Unlike the previous issues of index-linked certificates from NS&I, interest on the above accounts are to tax, although BM Savings does offer an ISA version at the same rates.

Protecting your cash against the ravages of inflation looks quite appealing at the moment, but sharp falls in RPI are unlikely to be mirrored by falls in savings-bond rates, so a mix of index-linked and standard fixed-rate products would seem quite a sensible strategy.

Andrew Hagger – Moneynet.co.uk