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
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Michael Brown shooting: Police shoot and kill second young black man near Ferguson
- 2 James Foley 'beheaded': Isis video shows militant with British accent 'execute US journalist' – and warns Obama of more to come
- 3 Why are UK rail fares so expensive?
- 4 Here’s the damning letter Robin Williams wrote to his Mrs Doubtfire co-star's principal after they expelled her
- 5 Cilla Black defends Cliff Richard: 'I am positive that the allegations are without foundation'
Isis threat: Cameron wants an alliance with Iran
Scottish independence: English people overwhelmingly want Scotland to stay in the UK
Crisis? What crisis? A visiting US doctor gives the NHS a rave review
Russell Brand calls for Israel boycott: Comedian urges big businesses that 'facilitate the oppression of people in Gaza' to pull funding
Ukip MEP calls for reintroduction of death penalty on fiftieth anniversary of last deaths
Michael Brown shooting: Chaos erupts on the streets of Ferguson after autopsy shows teenager was shot six times – twice in the head
iJobs Money & Business
£500 per day: Harrington Starr: SQL DBA/Developer SQL, C#, VBA, Linux, SQL Se...
£650 per day: Harrington Starr: C#.NET Developer ASP.Net, C#.net, WCF, WPF, .N...
£35000 - £38000 per annum + benefits: Ashdown Group: A highly successful, glob...
Highly Competitive Salary: Austen Lloyd: CITY - ASSET FINANCE - An outstanding...
Day In a Page
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
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony