New bond attracts 16m pounds in first days

SAVERS HAVE poured nearly pounds 16m into the new National Savings fixed-rate bond launched on Tuesday. Its popularity is likely to increase pressure on building societies to review mortgage rates.

The new First Option Bond, aimed at basic-rate taxpayers, appears to have made a big impression on investors, with more than 1,000 applications worth a total of pounds 13m coming in by the first post yesterday morning. By the time the second post was opened the bond had taken pounds 15.8m.

The bond is paying 7.75 per cent net of basic-rate tax, fixed for a year on amounts between pounds 1,000 and pounds 20,000. From pounds 20,000 upwards it pays 8.05 per cent net. The maximum investment is pounds 250,000.

Building societies are watching the impact of the bond because it could attract money away from their already depleted pool of mortgage-financing funds. With mortgage rates cut to the bone, societies have limited scope to raise rates for savers without raising mortgage rates or at least cutting back on some of the discounts they are offering.

Jim Murgatroyd, head of group corporate affairs at the Halifax Building Society, said: 'We are monitoring the situation and if we see inflows affected for any length of time we will have to reconsider our position.'

A spokesman for the Leeds Permanent said: 'It is still too early to say but it has had no significant effect on us at the moment. We would have to be visibly suffering and we are not to any extent to feel the need to retaliate.' Money, page 20