One-year or two-year fixed rate bond?

Hungerdunger

Our fixed rate bond with Nationwide matures at the end of August, so we're starting to look at where to put it.

I notice that several Building Societies (we prefer to save with them rather than banks) are offering lower rates for a two year bond than they do for a one year bond. For example Nationwide offer 6.7% for one year and 6.5% for two years.

We can't decide whether to go for a slightly lower rate over a longer period or take a gamble on where rates will be in a year's time. Assuming we can safely leave the money in savings for two years, does anyone know what the general consensus in financial circles is regarding interest rates in a year's time? Or do you have your own views?

Steve_xx

Who really can tell what interest rates will be like in two years time. One can only guess. As things stand today it looks likely that rates will edge upwards. They ought to do in order to help with inflation. But then, the banks have suffered mighty losses due to their incompetence at lending and therefore they will want to recoup some of that loss. So you might expect the gap between deposit and loan rates to widen, thus increasing the banks margins.

In two years maximum there has to be a general election and for the current government it wouldn't be good if interest rates are high at that point.

What's wrong with banks?

Why not put some of your cash in Kaupthing on a 3 year deal at 7.67%. If you want to get it back sooner you would simply drop 1% interest. They have one year and two year fixes too. Then there is ICICI Bank with their 12 month fix at 7.2%.

Both are protected in the UK for the first 35k deposited, so no more risk there than anywhere else.

Hungerdunger

Who really can tell what interest rates will be like in two years time

Agreed, but it's actually ONE year's time I was talking about which is when we'd have to re-invest the money if we went for a one-year bond.

What's wrong with banks?

Call us a pair of old hippies, but we prefer Building Societies as we feel they are on balance less likely to have ethical issues as they (generally) do not invest in or lend money to large corporations. Also, while they have to keep their members happy, Building Societies don't have to worry about shareholders.

LongTermLurker

Hungerdunger wrote: »

Call us a pair of old hippies, but we prefer Building Societies as we feel they are on balance less likely to have ethical issues as they (generally) do not invest in or lend money to large corporations.

But they do lend vast amounts of money to people who want high-priced new builds but can't necessarily afford them, which to me isn't at all ethical (which in itself goes to show people are different shades of green, so I'm not knocking you). If banks and building societies had stuck to the 3x salary model, it would have a) kept price rises in check and b) reduced the fashion of "I'm 23 and I want a modern, high spec house" buying.

Hungerdunger wrote: »

Also, while they have to keep their members happy, Building Societies don't have to worry about shareholders.

You could argue though that they don't have shareholders to feed them money though - just another slant.

Saying all the above, I sorely miss the days when Halifax were a BS - from a customer perspective, they were far better than the behemoth they've turned out to be.

t.keating.1

the post office are offering 7.05 guaranteed for the 1st year guaranteed.for 3-5 years you are guaranteed 6 pc.guaranteed.im a counter clerk and believe me its flying.customers are cancelling accounts left right and centre.they like the fact they can apply at the counter and come to get proffessional information face to face

Hungerdunger

t.keating.1 wrote: »

the post office are offering 7.05 guaranteed for the 1st year guaranteed.for 3-5 years you are guaranteed 6 pc.guaranteed.im a counter clerk and believe me its flying.customers are cancelling accounts left right and centre.they like the fact they can apply at the counter and come to get proffessional information face to face

Yes I saw a very similar message in the new thread you have just started, but as you have not offered me any advice on my original question, it just looks like a shameless plug for your employer.

Hungerdunger

LongTermLurker wrote: »

But they do lend vast amounts of money to people who want high-priced new builds but can't necessarily afford them, which to me isn't at all ethical

But at least they don't have relationships with companies who manufacture land mines to sell to dictators in far-off lands!

LongTermLurker wrote: »

Saying all the above, I sorely miss the days when Halifax were a BS - from a customer perspective, they were far better than the behemoth they've turned out to be.

And I may be wrong, but I believe there have been quite a few unhappy customers at Northern Rock too.

Anyway, I really didn't want to have this discussion (which has been aired on this forum many times before); I just want to know where interest rates are likely to be going over the next year!

LardyCake

Why not hedge your bets by splitting your money three ways?
For example if your maturing account has £30,000 then put
£10,000 into a one year fixed
£10,000 into a two year fixed
£10,000 into a three year fixed
When the one year fixed matures put this into a new three year fixed .... and so on....

In above example you will always have £10,000 available at one year or less notice.

http://www.fsa.gov.uk/tables is a good site to find the best rates.

a7man

Agreed with above if you need access to emergency savings however prob better to put £10k in 1 yr fixed and £20k in 3 yr fixed for better rates. If you have enough instant access money then 3 yr fixed for the full £30k is the best option to get the best rates.

t.keating.1

Hungerdunger wrote: »

Yes I saw a very similar message in the new thread you have just started, but as you have not offered me any advice on my original question, it just looks like a shameless plug for your employer.

im so very sorry.that was not my intention at all.i must have misunderstood.i genuinely thought you were looking at getting a better return on your money.i thought i was doing you a favour by letting you know about this fantastic offer that can be pulled at any time.i dont need to tout for business.we are advertised in the times and people are coming in their droves to apply

t.keating.1

Hungerdunger wrote: »

Yes I saw a very similar message in the new thread you have just started, but as you have not offered me any advice on my original question, it just looks like a shameless plug for your employer.

may i also say they have to cap interest rates because nobody knows which way the interest rates will go with the bank of england.you would need a crystal ball.so you know groth bond are guaranteed to give you that exact return and do not vary.if you invested for example 15,000 pounds and you are a tax payer,in 1 year you will clear 850 pounds