Nationwide has launched a new 5.30% fixed-rate savings account, but an expert has cautioned that savers may encounter an unforeseen tax bill when the 30-month bond reaches maturity. The new 30-month Member Exclusive Bond, which went live on Tuesday, is offered solely to Nationwide members and Virgin Money customers.
Nationwide said it would provide "a market-leading 5.30% AER/gross a year (fixed)". It can only be accessed by Nationwide members and Virgin Money customers who hold Nationwide membership. The building society indicated that savers depositing the maximum £10,000 would generate £1,381.92 in interest across the full 30-month period.
Loyalty Rewarded
Richard Stocker, Nationwide's head of savings, said: "Our research shows people want loyalty to be recognised and too many feel the best deals today are reserved for new customers. We don't think being a loyal customer should mean watching the best deals go to someone else."
"That's what being a mutual is all about – we're owned by our members rather than shareholders, so we can focus on delivering value back to them. Whether that's through exclusive products like our new Member Exclusive Bond or the £100 Fairer Share payments we've paid for four years running, we want our members to see a real benefit from being part of Nationwide," he added.
Possible Tax Bill for Savers
Harvey Dhillon, founder and CEO at Zmartly, said: "For a member who can leave the money untouched until the end, this is a solid offer, but the tax deserves as much attention as the rate. Banks should reward loyalty more, because people who've stayed put deserve at least a newcomer's deal."
"Keeping Nationwide's best fixed rate for existing members does that, even though anyone joining now is too late to qualify. On the plus side, the rate is fixed for the whole term. Against that, the money is normally locked in after a short window to cancel, and the interest is paid without tax taken off, so any bill is the saver's," Dhillon explained.
"The con that's easy to miss is timing, because HMRC's own guidance says interest on a bond you can't touch until it ends is taxed when it ends. So all the interest could count as income in the tax year the bond ends," he noted.
"Each year's interest on its own would fit inside the £1,000 tax-free allowance a basic-rate taxpayer currently gets, but the total on a maximum deposit doesn't, so part of it could be taxed," Dhillon added.
Factors Involved
Riz Malik, Independent Financial Adviser at Southend-on-Sea-based R3 Wealth, said: "A headline grabber for sure, but cash is still cash at the end of the day. Factor in inflation now and in the future, and the real returns may be eroded. After setting aside an emergency fund, segment your money by time and need, then consider your options based on the risk you are willing to take."
Eugen Neagu, director at N2 Asset Management Limited, added: "It is more of a market gimmick, a way to attract new customers and members. A comparable rate should be 4.5% per annum with Nationwide's credit rating, so up to £200 is invested in marketing to get new customers."
Neagu continued: "There are other banks with good credit ratings in need of new customers at this moment, for example Morgan Stanley, which wants to enter the retail space with an online offering. You could get a three-year fix at 5.2%, with a lot higher cap of £120,000 and minimum £1,000."
