Cant decide on Fixed Bond Term .. Help Please!

oldvicar

melbury wrote: »

I have just gone for a one year fixed rate bond (AA 3.6% gross) in the hope that rates will start rising in the not too distant future. They probably won't but I live in hope;)

I think rates will go up a little bit more in the next couple of months - after the warning from Sir Mervyn that banks need to strengthen their balance sheets because of the Euro risks, they will be pretty desperate to attract deposits. Unfortunately, I also think that in 12 months time they will have fallen back again, probably to a little less than they are now.

nilrem_2

Ifts wrote: »

Agree with the above, thats how I look at it when taking out fixed rate bonds. I usually go for 2 or 3 year fixes, that way it saves having to find a new home for it every year (esp when you have a number of fixed rate bonds). Also with 1 year fixed rate bonds I find you are earning less by the time you have got your hands on the maturing funds and then the money is usually waiting in some current account waiting to be collected for the next fixed term deal you have to sign up for.

As for the rates, I fix for the best available rate for a suitable amount of time, you win some and you lose some, in the end it averages out.

Same as you I normally only do 2 or 3 yr bonds, I only did a 5 yr this time because I was offered a decent rate, it was easy to do being a maturing bond and could be simply reinvested and the amount involved was not that large.

I always find it hassle having to move to another institution, it often takes a least a week resulting in lost of interest.

sabretoothtigger

oldtoolie wrote: »

Look at the terms and conditions of the term deposit bond. Most allow the account to be closed early with a reduction of interest paid.

I took a 5 year bond after seeing that I could close it after three years and receive a rate comparable to a three year bond. But if I want I can keep it five years with the higher rate.

That sounds good but I think its bad if no one mentions fixing rates when they are the lowest ever is a bad idea.

3.2 as instant access sounds great in comparison to the fixed rates mentioned. It doesnt seem like you are gaining much to me and possibly in five years we have inflation of 10% so you'd be losing alot by fixing

Isnt inflation already 5% or just tell me what % you are paying on your food bill from a year or two ago.

Would be gutted though if the interest rate shot up, but somehow I don't think thats ever going to happen!

It has to happen, think of it like a tide change except in money flowing in and out of the country.
At some point it appears like its stopped moving but that comes before the greatest changes occur and it will not be stopped

UK takes its money from abroad so you are in minority as a saver, fixing your position when nobody gives a dam about you is the worst timing. Do not pitch your tent at the low tide mark


In one years time it is the USA presidents election, the most important money capital of the world. I see that as a likely fulcrum to events for this decade

Ifts

nilrem wrote: »

I always find it hassle having to move to another institution, it often takes a least a week resulting in lost of interest.

And thats if your lucky enough to get it in another fixed term bond within a week, its usually a couple of weeks for me when moving to a different financial institution.

To fix or not to fix?.... I remember having the same conversation about fixing or not in this thread earlier on in March this year when Close Savings were offering 5% for their 3 year fixed rate bond: https://forums.moneysavingexpert.com/discussion/3085330 (post 16 on-wards)
So far I'm glad I went with that one

Like you say no one has a working crystal ball!

opinions4u

I think its bad if no one mentions fixing rates when they are the lowest ever is a bad idea

While it's a relevant point, it looks to me as if the fixed rate savings market also reflects the likelihood of base rate rises fairly well ... i.e. not much over the next couple of years.

Additionally, for longer term fixed rates, the actual rates being paid aren't a million miles off where they were in early 2008. 6% was the sort of rate for any fix of 2 years or over (this hit 7% towards the end of the year, but only as the banks got squeezed). Today we're seeing rates that are between 4% at 2 years and 4.7% at 5 years.

In other words, despite a low interest rate environment, fixed rate savers who go beyond the year are getting a pretty good deal.

nilrem_2

Another point worth remembering is that in the pre 'crash' days the rate paid was linked fairly tightly with the BOE rate whereas now the higher rates paid are more based on the LIBOR rate, therefore even if the BOE rate starts to creep slowly (can't see any sudden sharp rises in rate) there is no guarantee that fixed rate bonds rates will move upwards much.

I feel that if BOE rate rises some of the low interest accounts will see modest increases but sadly I can't see there being any significant upwards movements for Fixed rates for quite a while.

VT82

When it comes to fixed rates, what it really comes down to is how much it costs the bank to offer them. This is the margin over the swap rate. The swap rate is approximately what the market thinks the average Libor rate will be over the term, and hence is a proxy for what the market thinks the average bank base rate will be over the term. The higher the margin over the swap, the more expensive it is for the bank, meaning the more likely you are to be getting a good deal.

However, the bank is also willing to pay a premium for longer funding, as it means they will have to hold less liquidity on average, as the money spends more time being inaccessible (and holding liquidity costs money). It is also a lot less administratively burdensome to fund long – for them, borrowing for a five year term instead of five lots of one year saves masses of processing staff costs, envelopes, postage costs of posting maturity instructions etc. etc. That is why the margin cost over the swap rate of longer term funding tends to be higher, and this represents value to the saver.

For example, at one point today the one year swap rate was 1.065%, but the five year swap rate was 1.379% - suggesting a customer should, excluding their own preference for keeping cash liquid and their views on counterparty credit risk, be indifferent between a 1 year account paying 3.6% and a 5 year account paying 3.91%. However, you can get 4.7% for five years.

If you are in a position to save in cash for the long term, you should therefore normally go as long as you can, and I’m sure historic data will back this up.

Michael_Corleone

Lloyds are running an 18 month 'Tracker Bond' - might be useful for some people ...

Features & Benefits

• 3.30% AER variable for 18 months.
• Interest paid monthly at a rate of 3.25% Gross. This rate tracks at 2.75% above the Bank of England base rate - currently 0.50%.
• If the Bank of England base rate changes, your interest will change on the first working day of the following month.
• Interest will be paid monthly for 18 months.
• Minimum deposit of £2,000.
• No withdrawals, closures or additional deposits during the term.

Ifts

jaqui59 wrote: »

The highest rate ive seen so far is 4.70% ... If anybody has seen anything better, I would be grateful if you could let me know.

Thats about as best you are going to get at the moment.

The top 3 here are paying 4.70%: http://moneyfacts.co.uk/compare/savings/fixed-rate/long-term-bonds/

The Krbs 5 year fixed term offer does allow early access to your funds before the fixed term is up (subject to 180 day loss of interest).

BM Savings (5 year fix @ 4.65%) also allows access to your money before the maturity date, with the following penalty for withdrawing early:
Earlier access subject to penalty, depending on term outstanding: up to 5 years - 365 days, up to 4 years - 320 days, up to 3 years - 270 days, up to 2 years - 180 days, 1 year or less - 90 days.

bigfreddiel

jaqui59 wrote: »

Hi everyone

Ive got some money that I want to put into a Fixed Rate Bond, but don't know how long to lock it up for considering the Economic Climate.

Just wondered what everybody else is thinking on this?

Thankyou

simple - go for as long a fix with as much as you can afford to lock away - keep the equivalent of 6 months wages in an instant access account

a little bit of timing can help - for your fixed rate go for a 5 yr fixed rate isa each year - take one out in March and April - those are the months when the best fixes are offered, holdthe rest in other fixed rate accounts so that your isa allowance becomes available for use each april, ie 1,2,3,4,5 yr fixes and so on

if you'rein it for the long term 10+yrs consider S&S ISAs