AA Fixed Rate Savings Acc about to mature! What new deal to choose?

Ifts

Unfortunately my 1 year fixed rate savings bond paying 6.98% gross is about to mature in the next few weeks :sad:, wish I had fixed for longer.

If I want to re-invest the funds with the AA, they are offering me the following Internet based Fixed Rate Savings Bonds:

• Internet 14 Months FRB - Annual Income - 3.45% Gross p.a./AER (2.76% Net)
• 2 Year Fixed Rate Bond - Annual Income - 4.35% Gross p.a./AER (3.48% Net)
  2 Year Fixed Rate Bond - Monthly Income - 4.27% Gross p.a./4.35% AER (3.42% Net)
• 5 Year Fixed Rate Bond - Annual Income - 5.15% Gross p.a./AER (4.12% Net)
  5 Year Fixed Rate Bond - Monthly Income - 5.03% Gross p.a./5.15% AER (4.02% Net)

14 months FRB - No access is permitted, on the 2 & 5 year FRB access is permitted subject to a 90-day loss of interest charge on the amount withdrawn.

I was thinking of re-investing in the 5 year FRB with monthly income paying 5.03% Gross p.a./5.15% AER. I know it is fixed for 5 years but early access is permitted subject to the withdrawal penalty.

If Fixed Rate Bond interest rates significantly rise in the next year or so and for example I pulled my funds out after 1 year would I be right in thinking I would still receive roughly 3.79% Gross p.a? Which would be more than most 1 year fixed rate bonds are currently offering.
Hope my calculations were roughly on the right track (5.03/365x90=1.24 so 5.03-1.24=3.79)

And also would I be right in thinking the 90 day penalty would have a less of an effect in years 2/3/4/5 should I choose to withdraw my funds before the end of the 5 year term?

Would be grateful for your views and opinions, thanks.

Froglet

I am in exactly the same boat.Doesn't a year go quick! What seemed good rates at the time now seem brilliant.
However as you say it does pose a dilemma about how long to tie up again.Surely rates can't get much worse,only better.Never thought about paying the penalty for withdrawing early and still gaining so thanks for that advice.
I have a fortnight before i need to decide and will see how rates go in that time .

bootman

I Opted for the 5 year fixed annual interest option. Fingers crossed they honour it as I think it's no longer on the website.

opinions4u

Halifax Fixed Web Saver is paying 3.50% for a 1 year term.

twokcc

In same situation and have also been thinking about reinvesting in either 2 or 5 year bond. As i understand loss of 90 days interest is a fixed penalty and will alweays be the same amount in £. So for 25K at 2 years a full years interest @4.35% is £1087.5 so penalty would be £268.15 if notice given.
Or in 5 year bond yearly interest £1287.50 so 90 days penalty £321.88. Was originally going to invest in 2 year bond as less likely to need money in that period, but if invest in 5 years and get to end of 2 year period total interest will be (£25K*..0515*2years) £2575 as against £2175 in 2 year bond. So withdrawing early on 5 year bond would be £2575 -£321.88 £2253.12 which is still more than on 2 years running for full term. Looks as if the breakeven point after penalty on 5 year to 2 year without penalty is at about 23 months. Still pondering on this not sure which to so, and also want to buy some NS&I inflation linked investments as a safeguard against inflation, just don't trust nulabour to not rig the inflation figures when VAT is reinstated at 17.5% at yearend. :rolleyes:

fimonkey

So glad I saw this thread as I'm also in the same boat. I haven't yet read the small print of my options, but if the OP's post is correct then the loss of interest on the 5yr bond is 90 days loss on the amount withdrawn.

If you've gone for the monthly interest payments and intend to withdraw it at a later date then surely the loss of interest would be more the longer you leave it? (Compounded interest and all that).

Have I misunderstood? I have about 15K to invest which is a potential house deposit... wondering if your idea is good for that amount.

Many thanks

ivavoucher

bootman wrote: »

I Opted for the 5 year fixed annual interest option. Fingers crossed they honour it as I think it's no longer on the website.

I opted for the 5 year monthly, I did phone first and they said it was only on offer for maturing acounts and that is why it is not showing on the website.

Primrose

We're looking at various options for rolling over various maturing bonds over the coming months but also to bear in mind that we want to take advantage of the increased ISA allowances every year to reduce our tax burden. Therefore tying up money for periods longer than one year will make it more difficult to reserve the ISA allowance every year without losing it. So I'm having to make up a little table of when the various bonds mature and put a reminder in about setting aside enough money from them on maturity, to use up the current/next year's ISA allowance.

Ifts

bootman wrote: »

I Opted for the 5 year fixed annual interest option. Fingers crossed they honour it as I think it's no longer on the website.

Just got off the phone from the AA Savings team, I asked them if I could go for their 5 year fixed saving bond even though my original bond with them does not mature till 20 October 2009, they said that it would be fine as long as the 5 year bond is an option on my Maturity Renewal form.

fimonkey wrote: »

So glad I saw this thread as I'm also in the same boat. I haven't yet read the small print of my options, but if the OP's post is correct then the loss of interest on the 5yr bond is 90 days loss on the amount withdrawn.

Withdrawal arrangements: 2 year term and above - withdrawals are allowed subject to 90 days loss of interest on the amount withdrawn

If you've gone for the monthly interest payments and intend to withdraw it at a later date then surely the loss of interest would be more the longer you leave it? (Compounded interest and all that).

On the 5 Year Fixed Rate Bond - Monthly Income - 5.03% Gross p.a./5.15% AER (4.02% Net) if you closed the account and paid the 90 day penalty before maturity it would work out something like this:

Year 1 - 5.03/365x90 = 1.24 so 5.03-1.24 = 3.79%
year 2 - 5.03+5.03 = 10.06-1.24 = 8.82/2 = 4.41%
year 3 - 5.03+5.03+5.03 = 15.09-1.24 = 13.85/3 = 4.62%
and so on for years 4 & 5

I think the 90 day penalty would have a less of an effect the longer you leave your money in there (1.24% being the 90 day withdrawal penalty), also remember for partial withdrawals its 90 days loss of interest on the amount withdrawn only.

Also saw it being discussed on thisismoney.co.uk

Originally Posted by sagalout1954
Just logged off to do something more productive (like cooking lunch), when I read this http://boards.thisismoney.co.uk/tim/...message=444587 might be worth thinking about.

N.B. The AA 5 year fixed rate options in my OP are only for maturing accounts and that is why it is not showing on their website. But you can get similar here Birmingham Midshires but they are postal accounts.

Ifts

ivavoucher wrote: »

I opted for the 5 year monthly, I did phone first and they said it was only on offer for maturing acounts and that is why it is not showing on the website.

Similar fixed rate savings bonds also available at Birmingham Midshires, although these are postal accounts: http://www.askbm.co.uk/savings/p/long.asp

dougz_2

Ifts wrote: »

I think the 90 day penalty would have a less of an effect the longer you leave your money in there (1.24% being the 90 day withdrawal penalty)

Why do you think that? To profit from early withdrawal you need to find a new home for the money that will yield at least 1.24% more total interest than the bond would have over the remaining period to the maturity date. Thus the nearer you get to maturity the less time there is to recoup the penalty.