Bank of Cyprus launched a range of fixed-rate savings bonds this week, with rates at the top of the best buy tables. Its three-year bond has a rate of 4.35 per cent, beating the current best by 0.35 percentage points. Its two-year 4.3 per cent bond is also the best rate.
The catch is that Bank of Cyprus can't offer the peace of mind of UK state-owned Northern Rock or National Savings & Investments. Your deposits will be covered by two depositor protection schemes. Ninety per cent of the first €20,000 (£18,000) will be covered by the Cyprus Depositors' Protection Scheme, while 100 per cent of the next £32,000 is covered by the UK Financial Services Compensation Scheme. If Bank of Cyprus were to go bust, you could lose some of your savings – which won't happen if you opt for a bank or building society covered only by the FSCS.
And Cyprus's protection scheme is only as strong as the Cypriot government. As Iceland showed, a country that size would not be able to stand behind its scheme if there was a run on all its banks. Bank of Cyprus is offering great rates, but beware the additional risk.