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‘Brexit bond’ pays 3% if you guess what the pound will do

Written by: Paloma Kubiak
The Family Building Society has launched a ‘Brexit bond’ paying a 2% bonus if savers correctly predict how the pound reacts to the UK leaving the European Union. 

The mutual has unveiled two versions of its ‘Brexit bond’ allowing savers to bet whether the pound will be stronger or weaker on the day the UK is officially due to exit the EU (29 March 2019) than it was on 28 March 2017, the day before Article 50 was triggered.

Both versions of the product offer a guaranteed 1%, plus a potential 2% bonus at the end of the fixed term, which ends on 2 May.

The benchmark used is the pound/euro exchange rate published by the Bank of England on 28 March, which was £1 to €1.1535.

The Brexit Optimist bond is for savers who expect the pound to strengthen against the euro, while the Brexit Pessimist bond is for those who expect the pound to weaken against the euro.

No partial withdrawals or closures are allowed before the maturity date and there’s a minimum £10,000 investment level (up to a maximum £150,000).

Family Building Society confirms that if the UK has not left the EU by 29 March 2019, it will still use the 29 March 2019 date for determining whether the 2% bonus interest is paid.

Director of business development, Keith Barber, said: “This is a unique opportunity for savers to vote with their wallet on their view of the post-Brexit landscape. Of course we live in an uncertain world and there are many other things that affect the Pound:Euro exchange rate, not just the Brexit negotiations. Irrespective of how savers voted in the referendum in June 2016, they now have a further opportunity to express their views of Brexit and how it may benefit their savings.”

How good is the Brexit bond?

This is an “inviting offer” for savers fully behind or against Brexit, according to Rachel Springall, finance expert at data site Moneyfacts: “ Even if the wrong choice is made, savers are guaranteed to get back their original investment plus 1% interest for tying up cash until May 2019. If a saver chooses the right option, and the currency performs as they predicted, they can earn a decent amount of interest.”

The current best rate on a two-year fixed bond comes from Al Rayan Bank, with a 2.00% ‘expected’ profit rate, followed by Secure Trust Bank paying 1.85%, both of which require a much lower £1,000 deposit.

Springall said: “A standard fixed rate account will guarantee a return for a savers investment, so providers need to weigh up how much comes into the business and for how long. This is why attractive accounts can hit their subscription level quickly and why the range can be withdrawn without much notice to new investments.

“An alternative way to offer decent returns to a proportion of savers would be to pay a bonus or prize fund for the deposit. Throughout many years Premium Bonds have been very popular for this reason, as the deposit is not at risk and the prize could be lucrative. Halifax also offers a prize draw for savers and Family Building Society currently sell a Windfall Bond.

“At a time when interest rates on cash savings are low, these potential gains are likely to attract savers looking to use their cash a bit differently.”

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