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Should you invest in a ‘Brexit Bond’?

Savers earn extra by predicting the currency market

Think you’re politically savvy? A new two year fixed-term bond is challenging savers to predict the economic effects of Brexit, offering a bonus for those who guess right.

The Family Building Society has launched a ‘Brexit Bond’, giving savers with a £10,000 deposit the chance to gain a 2% bonus for correctly predicting if the pound will fall or rise against the Euro in the next two years.

We look at the how the Brexit bond works and whether it’s a wise investment.

How do Brexit Bonds work?

The Brexit bond is a choice of two fixed-term savings accounts, that pay a guaranteed 1% annual rate on your savings, until the account matures in May 2019.

You’ll also get a 2% bonus on your initial deposit, if you correctly guess whether the pound will be stronger or weaker against the Euro on 29 March 2019 (as measured by the Bank of England), compared to the exchange rate on 28 March 2017 when it was worth €1.1535.

As the name suggests, the Optimist Bond will pay the bonus if the pound rises. The Pessimist Bond will reward people who correctly predict a further fall for the pound. In the unlikely event that the exchange rate has moved by less than 0.01 cents, no-one wins anything.

Both accounts are fixed-term, and will pay back your savings and interest (plus the bonus, if you’re lucky) when the account matures on 2 May 2019. It’s not possible to get the interest paid to a different account.

How much could I get?

If you opened the account straightaway, a £10,000 deposit would earn £189.11 interest at maturity, with the potential for another £200 if you guess correctly. This means your annual effective rate is 1.01% if you’re wrong,  and 2.04% if you’re right.

Opening the account later means your money will spend less time earning interest. On the other hand, you won’t need to lock your cash away for long to have a chance of winning the bonus. To give an extreme example, by waiting until 28 March 2019 to open an account,  you could theoretically hold the account for just over a month. While you wouldn’t earn much interest, you would have a good chance of getting a 2% bonus for guessing the exchange rate movement.

In practice, however, waiting too long may mean missing out. There’s no deadline for applications, but Brexit Bonds are strictly while stocks last.

Is the Brexit Bond worth it?

That depends on your attitude to risk but it’s worth looking at the options carefully. Leaving aside the factors involved in forecasting currency movements, you basically have  a 50/50 chance of winning marginally more interest than you could get elsewhere – or losing half of it.

Atom Bank pays 2% on its two year bond at the moment, which is the best standard account on the market. These Brexit bonds offer you a slightly higher 2.04% rate if you invest today and get it right – but if you’re wrong you’ll end up getting just 1%, losing out on half your potential interest.

Can you bet both ways?

In theory, you could improve your guaranteed return by trying to hedge your bets. But you’re likely to be better off picking a straightforward fixed-rate savings account.

If you put £10,000 in the Optimist Bond, and another £10,000 in the Pessimist Bond today, you’d end up with £189.11 interest from each account. Assuming the exchange rate didn’t remain exactly the same, you’d also get a £200 bonus from one of the accounts. In total that’s £578.22, which is equivalent to 1.45% AER on your £20,000 savings. By contrast, you’re likely to get a better rate on a two-year fixed rate account – currently Atom Bank is offering 2%.

The possible exception stems from the fact that the 2% bonus only depends on if you’re right or wrong – not how long you hold the account. Pile in at the last minute, and you could earn 2% annual interest in less than two months. Again, this is unlikely to be helpful in practice as the account will become unavailable when stocks run out.

How much can I save?

Savers are allowed to deposit anywhere between £10,000 and £150,000.

How do I get one?

Either account can be opened online, by post or at the Family Building Society’s Epsom branch.

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