So you want 6 per cent interest? Go and bag yourself a retail bond
Sunday 28 October 2012
Shopping around for accounts offering decent interest rates is arduous at the best of times, but there is now an easier way to make your money work harder for you.
Retail bonds – relatively new products to come to market – are flying off the shelves. And with issue periods ending early due to demand, look sharp to snap up these bonds while offers last.
Names like Tesco, National Grid and Severn Trent have launched retail bonds as a way for them to borrow money, giving you the chance to earn attractive interest of around 5 or 6 per cent a year.
The bonds, which you can typically access with a minimum of £1,000, sometimes less, have a maturity date of around five years or more from issue, when they are due to pay back your original investment.
At a time when interest rates are languishing at 0.5 per cent and equity markets are choppy, these bonds offer a viable halfway house, giving you a decent return without a lot of risk.
"Most deposits are paying very low rates – sub 1 per cent in some cases," says Mark Glowrey at Canaccord Genuity. "Although some banks offer 3 per cent on deposits, this can be an introductory deal which drop to less generous rates."
And while British investors have long had a love affair with equities, these have become pretty volatile in recent years. "So the time is right for a re-emergence of bond investing," adds Mr Glowrey.
Although not necessarily a substitute for savings products, as they are riskier, the bonds can be a way of getting returns on cash that might otherwise be earning nothing. "Our clients are moving more money into these to make their cash work harder," says Alastair Thaw at Barclays Stockbrokers. "We are seeing a significant increase in business in this area," he adds.
"It had a slow start in 2010 but picked up in the second half of 2011. The number of bonds issued has risen substantially, as has clients' interest."
Although retail bonds existed in a different guise decades ago, they were launched in their current form on the London Stock Exchange at the start of 2010. In that year, they raised £230m from new issues, followed by £1.25bn in 2011 and £913m this year.
Just last week, the LSE closed its own retail bond six days earlier than planned, due to strong demand. Its bonds, the first from the exchange made available to retail investors, last for nine years and pay 4.75 per cent annually.
"The key benefit is that the interest is fixed," says Peter Day at stockbrokers Killik & Co. "The biggest grumble I hear is that interest rates fall on money on deposit with a bank from an initial 3 per cent to under 1 per cent, whereas a bond's rate cannot be cut."
Once you've bought bonds you're not trapped – you can sell before they are due to expire if you need to. To buy go via a broker in the same way you would with shares. The bonds, not subject to stamp duty, can be put in an individaul savings account or self-invested pension plan if they have at least five years to maturity.
With interest rates unlikely to rise soon, the queue for retail bonds is only likely to get longer.
Emma Dunkley is a reporter for Citywire.co.uk
Harry Potter actor suffered 'severe flu-like symptoms' on a flight from London to Orlando
First full-length look is finally here
World cities ranked in terms of safety, food security and 'liveability'
- 2 The awkward moment Sarah Palin raised $25,000 for Hillary Clinton's election campaign
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
- 5 Baldness could soon be treated using stem cells, scientists hope
9 reasons Greece's experiment with the radical left is doomed to failure
'We would evict Queen from Buckingham Palace and allocate her council house,' say Greens
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
iJobs Money & Business
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
£25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion