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‘Are YBS and L&G teaming up for your own good?’

August 17, 2007 at 11:21 am

The Offer: “A limited issue 1 year savings bond from Yorkshire Building Society
paying 9.00% gross p.a./AER* fixed until 08 September 2008, which is only available when bought alongside a long term Legal & General investment bond”

Walking down any high street it is likely that you will be greeted by a series of fantastic cash offers promising anything from 5-15% for investors who will enter through the banks “pearly gates”. Remember though that banks are quite literally “in it for the money” and it’s important to consider these propositions carefully. YBS and L&G’s offer does, however, turn out quite promising but deciphering the small print is crucial.

Firstly, 9.0% is not what you will get as an investor, instead as a lower rate tax payer (those of us who earn between £7,455 and £34,600) you will actually receive 7.2%. If you are a high earning individual you will, I’m afraid, further augment the coffers of the treasury and will have to declare additional interest on your tax return. This means you effectively receive 5.4% per annum. These are, however, still good rates and compete well with the market as a whole, a definite positive. With the Bank of England showing a greater reticence to increase the base rate following the latest inflation report, and analysts now reducing the probability of a rate increase, the fact that this rate is fixed is not such a negative.

At the end of the year you will receive the instant access rate. Most of us, while happy to commit new money to this kind of investment, will simply let it slip onto a lower rate. At YBS this isn’t disastrous but their current net rate of 3.6% is definitely a move in the wrong direction. The golden rule with this type of account is to make sure you review it.

The Legal and General element is a riskier Investment but very viable for the long term. L&G have a good choice of funds but you should seek professional advice in choosing funds remembering that the value of this Investment can go down as well as up.

Unlike some providers, all your money will be allocated to Investment and for managing your investments L&G will take around 1.5% a year, dependent upon the fund chosen. The Managed Accumulation fund, the most probable fund an adviser will put you in has outperformed its sector over 5 years but other more specialist funds are not market leaders and what you actually benefit from in terms of the cash element could easily be offset by choosing a fund manager with better performance. See Fund Performance for further information.

Despite this final word of warning this is actually a rather pleasant surprise, must be a new found generosity of those Yorkshire types. Please however remember investment performance is not guaranteed and at least 50% of your money is going to be at risk.

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