Duration of Bond

Crashtogether

i am looking to open an account to put my money in for the next few years. I don't really know what term would be wise though (1 yr, 2 year, 5 years?) Obviously the best rates atm comes with the long term ones but if that rates subsequently becomes "bad" over the term then I'm stuck with it.

Anybody any thoughts on what the best length to take out atm is?

Gymgenius

I wouldn't fix for any longer than a year, but that's just me.
I certainly wouldn't advise anyone to fix for longer than two years, as nobody knows what interest rates will do...although it's quite possible that, as the great Yazz once sung...the only way is up!

opinions4u

BM allow partial withdrawals and early closure at 90 days loss of interest.

Linky: "Withdrawals are allowed by post subject to a 90 day loss of interest on the amount withdrawn. "

Halifax seems to have some decent 2 and 3 year rates out today (4.30% / 4.55%) as well. Their get out clause is usually steeper though, especially early on.

NS&I have a 3.95% 1 year option as well.

I don't think we're going to see any significant rate leaps - if anything, as wholesale markets ease, fixed rates offered to savers are more likely to fall than rise.

D1zzy

My rules for me:-
Happy to go for 1 and 2 year bonds without an escape clause
My thinking on 2 year over 1 year, is that I will get a better rate for year 1 but there may be better rates available in year 2 so may lose out in year 2 but overall and after tax there would not be much loss over the 2 years - and I way even win.
I will only opt for longer than a 2 year fix if there is an option to withdraw and the penalty will not leave me worse off than if I had gone for the best 2 year option at the time (I recently opted for a 5 year with Saga @ 5.1 because if I withdrew after 2 years I would still be on the same effective gain as if I had gone for their 2 year bond, but I have the option to continue if rates hve not improved)
I do try to keep below the 50K comp limit and Bank groupings sometimes mean I cannot always go for the best available rate - so I factor that in as well.
Hope that's not too confusing.

Crashtogether

Do you think it would be a bit risky if I did 5 year bond @ 5.35%?

Personally i don't see the account rates jumping much higher, but I'm no expert that's just my opinion!

apt

Yes it's a risk, but also one that could pay off. Some people never want to tie up money for more than one or two years because you cannot predict the future. However, those who took fixed rate bonds and ISAs paying 6.5% to over 7% for 3-5 years when they were on offer in 2007-8 are sitting pretty now. But it's not a good idea to tie up all your savings in long-term bonds. Also personally I would rather take 5.15% with the ability to withdraw money with a small loss of interest than 5.35% with my money completely tied-in.

Crashtogether

It would be roughly half of my savings - the rest of my savings are easy access.

I presume you mean the principality 5.15%?

D1zzy

Crashtogether wrote: »

Do you think it would be a bit risky if I did 5 year bond @ 5.35%?

Personally i don't see the account rates jumping much higher, but I'm no expert that's just my opinion!

Agree with APT - no one knows what will happen in 5 Years, but at least if your bond has a withdrawal option you are in a position to take advantage if there are major hikes in rates.

For a basic rate tax payer the net per annum difference on a £1000 at £5.15% and £5.35% is about £1.60 - so .............