Bond savers may end up losing money
The relatively high returns offered by fixed-rate bonds are even more attractive as people struggle to make real returns on their cash because of high inflation and low interest rates, website Moneyfacts said. It called for an industry standard to be created to address what happens when the bond comes to an end, after finding significant industry variations.%VIRTUAL-SkimlinksPromo%
"However, what happens at the end of the term is less clear and would benefit from an industry standard. Until that happens we are left to the mercy of a varied and confusing journey that could end in a loss of money."
Some providers will simply return customers' money when the deal ends. But others shift the cash into a pre-designated account from which people could struggle to get their money back without paying penalty charges, Moneyfacts found.
This would come at a blow to savers at a time when the typical fixed-rate bond has an above-inflation rate of 4.57% for two years and 4.60% for five years. Without one clear system, it is essential that people remember when the bond ends and what they have agreed will happen next, Ms Waycot warned.
Moneyfacts found wide variations in the time-frame for when a provider tells a customer their bond is about to end, with some doing it a month or two weeks in advance and others not even specifying when they will do it.
"The purpose of the contact could be to find out where to put your money or it could be to tell you where the provider has decided to put it," Ms Waycot said. "This could be an unattractive back-of-the-cupboard account that pays virtually nothing, and it could stay there indefinitely unless you spring into action and move it to a better account."
If people ignore a letter to say the bond is about to end or they are away from home, they could find that their savings have been re-invested by the provider into another account, she warned.
"If you find you have been locked into another fixed-rate bond, then all the penalties for early withdrawal will apply. This could mean an interest penalty which is, in effect, a fine for early withdrawal, or it could mean you can't get your hands on your money at all for the duration of the term."
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