Seven year bond pays 3.52% - is it worth locking your money away?

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How do you like the idea of a solid 3.52% interest return? Secure Trust Bank is offering this new, highly competitive savings rate. You have to pay in a minimum of £1,000 and it's an online offer only. But there's one other rather large caveat lurking - you have to tie your money up for seven years.

Should you?



Secure and special?

Financial adviser Jon Horton from Chamberlain de Broe is wary of the offer. "Obviously Secure Trust Bank is reacting to a perceived public demand for income," he says. "They're [Secure Trust Bank] a challenger bank but with those sort of rates and for that kind of term, I suspect they will remain so."

In an environment where the long-term emphasis on interest rates is up rather than down, Horton advises hanging on - particularly if you're retired - to January 2015 when Special Pensioner Bonds paying "market leading" rates will be available.

Chancellor George Osborne claims these bonds, which he introduced in the last Budget, could offer as much as 2.8% for tying your cash up for a year, and up to 4% (potentially) for a three-year bond. Which puts Challenger's 3.52% offer for seven years very much in the shade.

Alternatives

Secure Trust Bank says the bond is on offer now until 30 June 2014 with a maturity date of 31 May 2021. Which sounds quite a wait.

Meanwhile there are also pretty reasonable deals elsewhere. For example, a Santander 123 current account offers up to 3% on balances from £3,000, up to a maximum of £20,000 (though you need to absorb a monthly account fee of £2).

If you have savings tucked away in other so-called "savings accounts" it might be a good time to review the rate you're getting. Which? recently warned that UK savers were losing out to the tune of £4.3bn a year by keeping savings in very low-paying accounts - some paying as little as 0.1%.

Bear in mind that inflation climbed to 1.8% in April compared to 1.6% in March - the first increase in the headline rate for almost a year, putting more pressure on your savings to perform.

Lastly, changes to the Isa rules means your new £15,000 allowance will give you new savings options: to save the full amount in cash, or spread it across stocks and shares. Or both. Much more flexible.

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