Focus On: Earn 3.25% on your savings AND do your bit for charity

With Remembrance Day only a couple of weeks away, Coventry Building Society has launched a new issue of its popular Poppy Bond...

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With Remembrance Day only a couple of weeks away, Coventry Building Society has launched a new issue of its popular Poppy Bond, which offers a fixed rate of interest and, uniquely, makes a direct donation to the Royal British Legion.

The account has an interest rate of 3.25% fixed for two years and Coventry Building Society will give 0.05% of the total value funds invested in the account to the Royal British Legion, a charity which has benefitted from almost £7million in donations since the bond was first launched in 2008. 

But is this the right account for you? Or would investing be a case of the heart ruling the head? Let's take a closer look...

What's the deal?

Coventry's Poppy Bond (11) is a fixed-rate savings bond that pays 3.25% (AER/gross pa) until December 31, 2014 - which means that have to lock your money away for over two years. But you'll be rewarded with a market-leading rate for a product of this type.

Interest can be paid to you either annually or monthly and the bond can be opened with just £1, which means that the next best comparable product on the market is BM Savings 2-Year Fixed Rate Bond, which offers an interest rate of 3.15% (AER). After that it's Barclays Premier Flexible Savings Plan Issue 4 which pays just 2.50% (AER).

The maximum you can invest is £250,000, but be mindful that if you are looking to invest a large lump sum then only the first £85,000 with any one financial institution will be protected under the terms of the Financial Services Compensation Scheme (FSCS).

The Poppy Bond (11) can be opened and operated either by telephone or online and you can open an account even if you have a bond that is still active from a previous issue.

Donations to the Royal British Legion's Poppy Appeal will be calculated one month after the bond is withdrawn from sale and will equate to 0.05% of the total amount of funds held across all the Poppy accounts. The money is paid by the Coventry from its own resources and is not subtracted from your account.

Any catches?

It's usually the case with this type of savings account that neither withdrawals nor closures are permitted during the term of the bond, and the Poppy Bond (11) is no different, so you'll have to be sure that you won't need to get to your funds until December 31, 2014, which, remember, is over two years away.

Another catch, which is usually associated with savings bonds, is that deposits can only be made while the account is still open to new customers, which in this case is until November 13, 2012, or for seven days after you make your initial deposit - whichever is longest.

One other stipulation is that all applicants must be aged 18 or over.

With these factors taken into consideration, it's safe to say that this is not the right account for you if you are likely to need to dip in and out of into your savings or if you need to build up your savings pot on a monthly basis.

Verdict

Although not suitable for those who may need to dip in and out of their savings or anyone who is looking to build up their savings pot by making monthly deposits, the Poppy Bond (11) is a great product for anyone with a sizeable lump sum to invest over a two-year period.

Not only can savers take advantage of a market-leading interest rate - although this could easily change for the better or worse between now and December, 2014 - they can also do their bit for a worthwhile cause via the donation to the Royal British Legion.

Top Tip

While the Coventry Building Society's Poppy Bond (11) offers a market-leading rate, you can benefit from even higher rates if you pick an account with a higher minimum investment or are prepared to leave your money tied up for a while longer.

For instance, the State Bank of India Hi Return Fixed Deposit offers an interest rate of 3.50% (AER), fixed for two years on a minimum investment of £1,000, or 4.20% (AER) on its five-year fixed rate bond.

Please note: Any rates or deals mentioned in this article were available at the time of writing