Deposit rates heading up?

bendix

I don't know about you guys, but I'm getting increasingly bullish about deposit rates increasing in the not too distant future, largely because the retail banks need to entice money back into such accounts to shore up their balance sheets and to reverse the trend of millions of people withdrawing billions of pounds in recent months as interest rates and investment returns have plunged. We have already seen Barclays pip the market with a 3.61% ISA; the other guys will need to move in the same direction to compete.

On a related issue, the vast majority of my funds are in term deposits in New Zealand. I'm lucky because i tied much of it up in an 8.55% 2 year bond last year (expires feb 2010), but some of it is in rolling two month terms and of course the returns have plummetted.

However, I got an email from my relationship banker there yesterday, announcing that new rates for longer term investments are completely bucking the trend. From expecting to get a 3% return when i next renew at the end of the month, they are now offering 5.25% for 2 years, and 6% for 5 years. As a NZ citizen but non-resident these returns are tax free for me, except for a 2% levy on all investment returns.

A sign of things to come over here, perhaps?

theGrinch

I cannot see UK rates heading to that level any time soon, but once this whole mess is over and inflation is back as Im convinced it will be, then we could well see savings at 7% plus - but as said not this year or next. I was always taught that its real interest rates that matter ( interest rate less inflation rate).

3m libor is today at 1.91% and 12m libor is 2.27% so the market isnt expecting a material rise anytime soon.