Fix for a year or stay liquid?

Primrose

We have a one year bond with the Nationwide due to mature shortly and our dilemma in the current banking crisis is whether to roll it over (with them or somebody else) for another year or to save the money in an instant savings account. As pensioners we need to maximise our income. Much of our surplus cash (apart from a reasonable amount for emergencies) is tied up in one year fixes to protect from possible interest rate reductions Any thoughts on which route would be best?

thrupence

Primrose wrote: »

We have a one year bond with the Nationwide due to mature shortly and our dilemma in the current banking crisis is whether to roll it over (with them or somebody else) for another year or to save the money in an instant savings account. As pensioners we need to maximise our income. Much of our surplus cash (apart from a reasonable amount for emergencies) is tied up in one year fixes to protect from possible interest rate reductions Any thoughts on which route would be best?

I've got one of these maturing shortly too. Their highest interest rate for amounts over £50,000 is only 6.50% and you can certainly do better elsewhere even on instant access.

ICICI Bank (£1,000+) 7.20 5.76 4.32 Kaupthing Edge (£5,000+)(1) 7.15 5.72 4.29 FirstSave (£1,000+) 7.10 5.68 4.26 Icesave (£1,000+)(1) 7.06 5.65 4.24 Anglo Irish (£500) 7.05 5.64 4.23 Heritable Bank (£1,000+) 6.85 5.48 4.11 Cheshire (£1,000+) 6.80 5.44 3.08 Bank of Cyprus UK (£100+) 6.75 5.40 4.05 Capital One (£1,000+) 6.75 5.40 4.05 Bradford & Bingley (£1,000) 6.75 5.40 4.05 Chelsea BS (£1,000+)(7) 6.66 5.33 3.96 Saga (£1) (1)(11) 6.65 5.32 3.99 National Counties BS (£1,000+) 6.61 5.29 3.97 Progressive BS (£500+) 6.55 5.24 3.93

Speculator

You could open an AA 1 year savings Bond paying monthly interest of 6.98% or 7.21% annual gross. http://www.theaa.com/savings/year_fixed.html

AA savings is operated by Birmingham Mids, part of HBOS group.

Primrose

Thanks. What I'm really trying to get to grips with is not specifically the interest rate payable (although that's important) but whether in this current era of financial turmoil and insecurity, it's better to lock yourself in anywhere for a year to get a higher interest rate, or stay in an easy access account so that if you want to grab back quick control of your money and move it because of a sudden hiccup in the financial market, you can.

opinions4u

The honest answer is that nobody really knows.

I think bank base rates will drop - but this doesn't necessarily mean savings and mortgage rates will follow downwards.

Perhaps the 7% AER on Halifax Web Saver for 3 or 6 months sits nicely on the fence for you.

nicko33

Primrose wrote: »

because of a sudden hiccup in the financial market

What sort of hiccup are you thinking of?
A bank having to be nationalised or rescued by another bank?
Banks not lending money to each other?

An easy-access account in Northern Rock wouldn't have given you quick control of your money during its "hiccup".
There probably won't be any more scenes like that though.
The A&L, B&B, and HBOS hiccups have been far more civilised affairs, now that the Govt realises it has to take quicker action.

ManAtHome

Have a look at the Coventry 50+ account - instant access but fixed rate of 6.25% for a year http://www.coventrybuildingsociety.co.uk/savings/esave.aspx (and don't put too many eggs in one basket...)

GeorgeHowell

The direction of interest rates in the short/medium term is very uncertain, as the B of E tries to grapple with the twin threats of inflation and recession, although its brief forces it to prioritise the former. In addittion the LIBOR appears to bear little relation to Bank Rate at the moment, as is also the case for some savings rates.

Therefore the answer is to hedge the bets -- 50% variable, 50% fixed. That way you won't earn as much interest as if you guessed right, but you won't be down as much as if you'd guessed wrong.

LardyCake

...and you could hedge your bets even more by splitting up your fixed term, fixed rate "pot" into, say, three equal sums (A, B & C) and putting "A" into a one year fix, "B" into a two year fix and "C" into a three year fix. When "A" matures put it into a three year fix (by this time "B" will have one year left & "C" will have two years left) and so on....

Thus, you always have a third of you fixed rate money fixed for one year, another third fixed for two years and another third fixed for three years. In theory this should help to even out fluctuations in interest rates.