Should I tie up my par­ents’ sav­ings?

The Daily Telegraph - Your Money - - FRONT PAGE -

I am look­ing for a sav­ings bond for my par­ents. They have quite a bit of cash sit­ting around, earn­ing next to noth­ing. What op­tions do I have and how long should I lock the cash away for? TL, VIA EMAIL

While sav­ings rates are still gen­er­ally low, there are some com­pet­i­tive ac­counts avail­able from smaller banks.

In gen­eral, the longer you are happy to lock away your cash for, the more in­ter­est you will earn. How­ever, you should con­sider whether your par­ents will need ac­cess to their money be­fore ty­ing it up for the longer term.

Anna Bowes, of the sav­ings com­par­i­son service Sav­ings Cham­pion, said few of the top deals on the mar­ket to­day were from house­hold names.

The best easy-ac­cess rate is cur­rently 1.32pc from Bank of Cyprus UK, while the top one-year fixed rate is Atom Bank’s 1.95pc. How­ever, ac­counts with Atom Bank must be opened and man­aged through a smart­phone app, so they are not suit­able for all.

Over three years, the best rate is 2.31pc with French-owned RCI Bank. If you are com­fort­able lock­ing sav­ings away for even longer, Van­quis Bank pays 2.7pc on its five-year bond.

Ms Bowes said that while these providers were not ma­jor brands, each was backed by a de­posit pro­tec­tion scheme. This means your sav­ings would be safe in the event of a bank fail­ure.

“You may not have heard of any of these providers, as they are lesser-known ‘chal­lenger’ banks, but all of them be­long to a pro­tec­tion scheme,” she said. “This means up to £85,000 (€100,000 in the case of RCI Bank as it uses the French de­posit pro­tec­tion scheme) is pro­tected in the worst-case sce­nario of the bank go­ing bust.”

How long you choose to tie your par­ents’ sav­ings up for de­pends on their per­sonal cir­cum­stances. If your par­ents are rea­son­ably young and in good health they may not need ac­cess, so a long-term bond could work well. How­ever, if you feel they may need ac­cess to their cash sooner, it may not be wise to lock it away, as most fixed-term ac­counts will not let you with­draw your money be­fore the term ends.

Also worth con­sid­er­ing are fu­ture in­creases in Bank Rate, which could push up sav­ings rates

an­swers read­ers’ ques­tions. This week: sav­ings

across the mar­ket. “The risk in lock­ing into a longer-term bond is that if best-buy rates in­crease, the rate you are earn­ing will not,” Ms Bowes added. “How­ever, while you wait for bet­ter rates to come along, you are miss­ing out on the higher in­ter­est that you could be earn­ing in the mean­time.”

One pos­si­ble so­lu­tion is to split your cash across ac­counts with dif­fer­ent terms. While this would in­volve some ex­tra work, it would

Ba­sic-rate tax­pay­ers can earn £1,000 in in­ter­est with­out be­ing taxed

al­low you to take ad­van­tage of the best rates avail­able now and to re­view the sit­u­a­tion over the next few years as the ac­counts ma­ture.

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