Re-investing maturing Fixed Rate Bonds

harz99

A word of caution for anyone who has recently given Birmingham Midshires instructions to re invest an existing bond - if the interest rate has increased between you sending back the letter and the maturity date, they do not automatically pay you the higher rate on your re investment, ring them now to make sure. It follows that this will apply to Saga investors as well for BM administer for them. It may well apply to all financial institutions.
Sharp practice or what! :mad:

dunstonh

Sharp practice or what! :mad:

No. If you send in an application for a fixed rate bond at a certain rate, then that is what you get. The fact they may issue a new tranche at a higher rate is irrelevant. You haven't applied for that. The same works in reverse when rates go down.

harz99

dunstonh wrote: »

No. If you send in an application for a fixed rate bond at a certain rate, then that is what you get. The fact they may issue a new tranche at a higher rate is irrelevant. You haven't applied for that. The same works in reverse when rates go down.

Maybe not sharp practice then, but given the fact that I cannot reinvest the money until the maturity date of the original bond, by which time a new rate/tranche is in force, it is not unreasonable to expect to either get the new rate or at least be notified by the provider and given the opportunity by the provider of opting into the new rate.

However, the purpose of the original post was to serve as a warning to others who may be reinvesting under similar circumstances, and still stands.:cool:

dunstonh

Do you need to auto-roll it over into the lower rate one? Can you not take the money and then reinvest it manually into the higher rate? (being lazy here and not looking up their rates on my software)

Primrose

I'm going to find myself in this situation with B-M in September when 2 bonds mature. I've e-mailed them and asked if they can hold the money in a temporary savings account for me as I'd like to get a better deal on a new bond interest rate if there's an Autumn Bank Rate increase. This would save cashing in their cheque and then having to write out a new one shortly afterwards. To date nobody has bothered to reply.

harz99

We had in fact returned the reinvest letter and I only realised what would happen, the day before maturity; rang customer services and they agreed to make the amendment and confirmed they do not automatically pay the higher rate.

Probably best to return the reinvest letter, with a letter from you to the effect that you wish to reinvest in (whichever) bond at the best rate available on the date of maturity, and then follow up with a phone call a couple of days before, unless as you say, you get a cheque from them etc.

ManAtHome

I have a 1 year fixed - T&Cs say they'll transfer it at maturity into an easy access account if they receive no instructions from me. This may be a relatively recent innovation - unfortunately can't give you "a definite" until next Feb... hope it goes into my online saver and not a new postal one.

harz99

dunstonh wrote: »

Do you need to auto-roll it over into the lower rate one? Can you not take the money and then reinvest it manually into the higher rate? (being lazy here and not looking up their rates on my software)

Yes, of course I could do as you suggest - but would you, given that BM's rates are some of the best about, that you would not have your money invested for two weeks or so whilst cheques cleared, and even more importantly with the postmen's union trying to commit hari-kari for its members!!!

dunstonh

Yes, of course I could do as you suggest - but would you, given that BM's rates are some of the best about, that you would not have your money invested for two weeks or so whilst cheques cleared

Im not a big saver. I am investor. I only keep a small amount relatively speaking in cash as it loses money in real terms for me and I cannot be bothered about worrying about a few days here and there. If rates are likely to change, I would rather keep the decision in my control. Cheque/BACS clearance is only three days and my bank backdates interest to the day you pay the cheque in.

I also tend take the view that using 1 year fixed term deposits and rolling them over again and again is wasteful. I would rather use NS&I certs.

harz99

dunstonh wrote: »

Im not a big saver. I am investor. I only keep a small amount relatively speaking in cash as it loses money in real terms for me and I cannot be bothered about worrying about a few days here and there. If rates are likely to change, I would rather keep the decision in my control. Cheque/BACS clearance is only three days and my bank backdates interest to the day you pay the cheque in.

I also tend take the view that using 1 year fixed term deposits and rolling them over again and again is wasteful. I would rather use NS&I certs.

Yes, but if you are one of the many people using these bonds for a monthly income at the best interest rates (myself included) to boost pensions without exposure to stock market risks, the time delay does matter. Also the additional charges levied for payment via BACS can amount to a months net interest for a smaller cash sum invested. To repeat myself, getting a cheque back to me, paying it in to my bank, it clearing, me completing a new application and sending another cheque which then has to be processed and cleared will take a minimum of two weeks. To repeat myself again, with the current postal dispute about to escalate, it would take even longer.

dunstonh

Yes, but if you are one of the many people using these bonds for a monthly income at the best interest rates (myself included) to boost pensions without exposure to stock market risks, the time delay does matter.

There is not two levels of risk. It isnt cash vs stockmarket. There is a whole spread of risk. You are actually taking quite a risk using these for income as the whole capital value is being eroded by inflation. £100k would be worth around £70k in 10 years. A bit like a stockmarket crash in real terms with no chance of recovery.