Spotlight On: Leeds' base rate tracker bond

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The Independent Online

The deal

Leeds Building Society will pay Bank of England base rate plus 2 per cent for a year on its new postal tracker bond.

The good points

With base rate currently at 0.5 per cent, the account pays 2.5 per cent but will look a lot more attractive if interest rates rise. The CBI predicts that the base rate will hit 1.75 per cent by the end of the year, which would leave the bond paying 3.75 per cent.

The bad points

If the base rate doesn't rise, or doesn't go up for some months, the interest rate on the bond will not look so attractive.

Conclusion

This is a gimmick but is it a good one or not? Only time will tell. If the Bank base rate rockets pretty soon, anyone investing in the bond could be sitting pretty. But if the Bank rate remains at its record low level until August, as some experts predict, that could mean at least six months of pretty paltry returns. You can take your money out at any time with no penalty, so you could always close the bond after a month or two if the prospect of a quick rate rise recedes. Or you could find a better deal now.

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