Birmingham Midshires’ 10-year savings bond paying 6 per cent

What’s the deal?

A fixed-rate savings bond lasting 10 years that pays 6 per cent gross per annum.

The bond, from HBOS-owned Birmingham Midshires, can pay out interest annually or monthly (in which case the rate is 5.84 per cent) to savers wanting income.

Individuals can invest between £1,000 and £1m.

Is this good?

The deal offers long-term certainty and protection from falling rates.

It’s the only bond of this lengthy term available, says Moneyfacts, the rate monitor.

But rates on shorter term bonds are higher, particularly those with terms of one year or less, where savers can lock in to returns of up to about 6.75 per cent.

Instant access savings rates also offer up to about 6.5 per cent, although many of these could face cuts following last week’s base rate reduction to 5 per cent.

Any catches?

While savers can take a monthly or annual income from the bond, their money is tied up for 10 years. The only exception is if the saver dies, when families will be able to access the funds without penalty.

Experts say that longer- term bonds have tended not to be popular among savers because of the commitment required.

There’s also the risk of inflation and therefore interest rates rising over the term, leaving savers locked into a relatively poor return which, after tax, equates to 4.8 per cent a year for a basic rate taxpayer and just 3.6 per cent for someone in the higher rate band.

Birmingham Midshires says 6 per cent is above the average of base rates over the past decade, and it is nearly 10 years since base was higher than 6 per cent.

What are the alternatives?

Shorter-term bonds combine higher returns and protection from falling base rates without such a long tie-in.

Savers wanting flexibility could also consider splitting funds between fixed and variable-rate deals.

For those prepared to lock away funds for 10 years, experts suggest stock market investments instead. Over a full decade of investment, shares have generally beaten cash. Investors also stand to benefit from better tax treatment of share returns, as profits are subject to capital gains tax of just 18 per cent. Isas and pensions also offer more scope for sheltering returns from tax.

How do I find out more?

Birmingham Midshires is on 0845 603 6601 or at www.askbm.co.uk

The website www.moneyfacts.co.uk has full listings of shorter-term bonds and other cash savings deals.