13:47 06 March 2013
There's been little for savers to celebrate recently, but this week saw a new specialist provider launch a market leading fixed rate bond.
For the first time ever, a farmers' bank is offering a range of savings accounts, which includes a five-year bond paying a fixed annual equivalent rate (AER) of 3.60%. This is the kind of return that could make you look twice in the current environment of sliding savings rates.
However, you don't get something for nothing and this deal will require some careful ploughing through the small print. We take a closer look...
What's the deal?
The savings bond is from AgriBank - a Maltese-based bank which has recently opened its doors in the UK. It offers a range of fixed rate bonds with a top rate of 3.60% on its five-year account. Its four-year bond pays an AER of 3.50% while its three-year deal pays 3.35% AER.
The minimum deposit (on all accounts) is £10,000, and savers can choose for interest to be paid every six months, annually or at maturity.
At 3.60%, the five-year fixed rate bond from AgriBank is market-leading, as are the four and three-year versions.
The next best five-year fixed rate bond on the market is from First Save and offers an AER of 3.05% on a minimum deposit of £1,000. Vanquis Bank's High Yield Bond pays slightly less at 3.01% on the same minimum deposit.
As its name would suggest, AgriBank deals in the agricultural industry. It will use the retail deposits it collects from UK savers to provide loans exclusively to UK-based farmers. These loans will fund finance for agricultural machinery and equipment.
The biggest catch with any of AgriBank's fixed rate bonds is that money deposited in the accounts is not protected by the government's Financial Services Compensation Scheme (FSCS). So if the bank should fail, savers will lose their cash.
Savers need to carefully consider whether they are prepared to sacrifice this guarantee for a greater return.
However, the bank is regulated by the Malta Financial Services Authority (MFSA) and is approved by the UK regulator, the Financial Services Authority (FSA).
The account requires a hefty deposit of £10,000, which many won't have to squirrel away.
You will also have to tie up your money for the five-year term, which is usually the longest period fixed rate bonds span. And while market leading now, in five years' time if (and probably when) interest rates rise, the rate of 3.60% may not look so appealing.
What's the verdict?
AgriBank is a welcome addition to the savings market for hard-pressed savers with a range of bonds that beat the current rate of inflation, which stands at 2.70%.
The five-year bond pays more than seven times the Bank of England base rate, which still sits at just 0.50%.
However, the fact that money deposited with the bank isn't covered by the FSCS will be a significant disadvantage for many savers - even if it's just a psychological one.
That said, the bank operates in the UK agriculture market where, historically, risk has been very low. Over the last 10 years, the average default rate for loans in this sector stood at 0.30% and the final loss rate has been 0%. This is because lending is secured against farming machinery which can be repossessed and sold at auction.
Frank Sekula, AgriBank founder, said: "We plan to operate a traditional banking model by taking deposits and lending them to farmers whom we know will pay them back. Our aim is to offer savers more competitive rates than are currently offered by banks by focusing solely on the sector that we know best and being very efficient at delivering our services."
Kevin Mountford, head of banking at MoneySupermarket said: "It is good to see another option for hard pressed savers."
Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.
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