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Fixed rate bonds for trusts

If you are a Trustee looking for the best way to grow the capital of your Trust, then you might want to consider fixed rate bonds.

Providing you are prepared to lock up the Trust’s capital for a period of time, you can access higher rates of interest through a fixed rate bond.

Fixed rate bond features

You can take out a fixed rate bond through a bank or building society. Depending on how long you intend to leave the Trust’s capital untouched, you could select a short term or long term fixed rate bond.

The most popular fixed rate bonds run for 1 year2 years3 years or 5 years. If you are confident that you won’t need the Trust’s capital for a long time, you might want to explore long term fixed rate bonds. This is because the longer fixed rate bonds often have the best interest rates.

You will not be able to access the Trust’s capital once it is in a fixed rate bond.  Although there are some banks that allow you to withdraw the capital or close early, in the event an early withdrawal is made they will charge a penalty; this is usually a number of days’ worth of interest and can significantly reduce the initial capital.

Financial Services Compensation Scheme

Despite the fact that you cannot withdraw capital from a fixed rate bond without a penalty, Financial Services Compensation Scheme (FSCS) provides you peace of mind that your Trust’s capital is safe. The FSCS provides protection for the first £85,000 that is deposited, providing the bank has a banking authorisation.

It is important to note that some banks are part of bigger companies that have multiple banking service providers, which share the same banking authorisation. In this case your Trust’s capital will only be protected for the first £85,000 across all the banking brands within the bigger company.

If you plan on depositing capital in multiple fixed rate bonds with different banks, it is advisable to check that the banks have separate UK banking licences to ensure you benefit from FSCS protection on every bond.

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