Higher rates now available may not be held for much longer. The overall picture is constantly shifting, and it may be worth grabbing returns at the top end while they are still around.
The table shows best rates available on Friday. Almost all the investments shown will accept pounds 1,000 or less. Even with only pounds 100 there are three possibilities from which to choose.
The only two building society accounts given are instant access postal accounts with high minimum investments, paying interest yearly. Term accounts and notice accounts from banks and building societies have become uncompetitive, with typical returns of 7 per cent gross (5.25 per cent net) on a 90-day account or 6.2 per cent gross (4.67 per cent net) on an instant access account paying interest monthly.
National Savings are competitive, with rates fixed for one year at 8.67 per cent gross (6.5 per cent net) on First Option Bonds or for five years at 9 per cent gross (6.75 per cent net) on Series F Capital Bonds.
Some of the best rates on offer are from the relatively little- known Co-op and local authority bonds. Retail Co-ops - the familiar high street shops - are empowered to issue bonds with a fixed term and fixed rate of interest, paid without deduction of tax. Protected under the Banking Act, these bonds offer security and the best one- and three-year rates in our table.
The star rate of return is 9.5 per cent on pounds 1,000 over five years from Great Grimsby Borough Council. Rates on both types of bond change frequently.
Guaranteed income bonds now look poor. General Portfolio is offering net returns of 4.9 per cent (6.5 per cent gross) over one year and 5.9 per cent (7.86 per cent gross) over five years on a pounds 10,000 investment. These bonds pay net of basic rate tax, which cannot be reclaimed.
With gilt prices rising in response to falling interest rates there have been opportunities for taking capital gains, but gross redemption yields have fallen.
Jeremy Alford, of the gilt specialists Whittingdale, quotes the example of Treasury 9 3/4 per cent 2002, which had an 8.2 per cent redemption yield early last week. Like most gilts it was trading at more than par value, so there would be a capital loss on maturity. Whittingdale's Gilt Income unit trust now yields 9.3 per cent.
High yields are obtainable on the income shares and zero coupon preference shares of investment trusts. With these, some advice is crucial, since they vary in character and in the degree of risk attached.
Lower-risk choices from Philip Davies, of UBS Phillips & Drew, are M&G Income zeros and the income shares of General Consolidated. The M&G Income zeros had a gross redemption yield of 9.6 per cent early last week.
The underlying portfolio needs to grow by only 1.9 per cent a year between now and 2001 for the zero holders to be paid in full. General Consolidated, trading at 104p, is due to be repaid at 100p a share in 1997. This brings its 12 per cent running yield, with no income growth assumed, down to a 9.5 per cent redemption yield.
Given current uncertainty, is it worth locking up money in a term deposit at present rates? Whittingdale is not the only group to think that rates 'can and must come down much further'. Mr Alford summarises current sentiment: 'Cash is trash - lock into available rates now.'
Moneyfacts, which produced our table, publishes a monthly rates guide. For a free issue telephone 0692 500677.
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