Thoughts on fixing savings now?

dude7691

Hi all

Now I know no one here has a crystal ball regarding interest rates. But I've seen the Al Rayan Fixed Term Deposit accounts increase their rates pretty rapidly over the last month or two. I think a 3 year fix was hovering around 0.9-1% and now it's at 1.31% (AER). I'm saving for a house in 4 years time, but have serious concerns about underestimation of inflation. The main reason we haven't seen inflation in my view is that people aren't spending at the moment due to lockdowns. Once lockdowns are lifted, surely the velocity of money skyrockets as savings are spent and we see a high inflation rate (3%+) within a short time frame, especially as £400bn (20% or so of GDP) has been printed since March 2020. I currently have about £12k liquid and am very tempted to put it all into this account as it'll probably be withdrawn very quickly (it's beating every other similar account by a large margin). However, I currently have a current account with Al Rayan, that's paying 1.02% (just got cut from 1.15%). The advantage of this of course is that it's liquid cash, but the rate could drop significantly. Also, I'm looking to invest surplus cash (unneeded for my deposit) but will only do so in the event of a significant market correction (US markets), and by the time I believe a correction will come I'll have sufficient liquid cash to take advantage anyway.

In summary, I wouldn't mind tying my money up in this bond as it's a good rate in ordinary circumstances (1.31%, vs base rate of 0.1%, plus possibility of negative base rate) but am concerned about inflation and want to double check I'm not worrying unnecessarily. Does anyone think the base rate is realistically going to go negative? Seems like a lot of expense and trouble to use a strategy which has been proven unsuccessful elsewhere. I know we haven't printed money to the point of excess like the US has, but still significant amounts.  

Thanks  

2010

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

grumiofoundation

2010 said:

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

Your 2 points are mutually exclusive. If the profit cannot be met you will be given the option to access the cash from that point (or take lower profit moving towards). 

Albermarle

. I'm saving for a house in 4 years time, 

If this would be a first time buy and you fit the other criteria, have you looked at a LISA for the 25% free top up ?

https://www.moneysavingexpert.com/savings/lifetime-isas/

colsten

If you went for the 3-year Al Rayan account, you could only put in your existing savings, not add to them as you go along.

If a LISA isn't suitable, or if you have more than fits into a LISA, you could look at Regular Savers.

colsten

grumiofoundation said:

2010 said:

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

Your 2 points are mutually exclusive. If the profit cannot be met you will be given the option to access the cash from that point (or take lower profit moving towards). 

I have had a number of Al Rayan products over the years. They have always paid the expected rate / given the option to close your account if rate dropped. I have not seen them drop a rate on a fixed rate product though, only on variable rate ones.

JohnWinder

'The Wall Street Journal shared an amazing graphic yesterday showing predictions from 50 economists on the direction of interest rates.  The average forecast for the end of June was 3.39% on the ten-year. As you can see in the chart below, not one of them came close to where rates currently are.'

https://theirrelevantinvestor.com/2019/06/12/more-art-than-science/ 

grumiofoundation

colsten said:

grumiofoundation said:

2010 said:

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

Your 2 points are mutually exclusive. If the profit cannot be met you will be given the option to access the cash from that point (or take lower profit moving towards). 

I have had a number of Al Rayan products over the years. They have always paid the expected rate / given the option to close your account if rate dropped. I have not seen them drop a rate on a fixed rate product though, only on variable rate ones.

The link I found said that, even said on occasion has paid higher.
https://www.alrayanbank.co.uk/savings/compare-al-rayan-banks-savings-accounts/a-guide-to-expected-profit/

dude7691

2010 said:

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

Yes it's not technically guaranteed, but as far as I know no UK based Sharia bank has failed to pay expected profit in the past  

dude7691

Albermarle said:

. I'm saving for a house in 4 years time, 

If this would be a first time buy and you fit the other criteria, have you looked at a LISA for the 25% free top up ?

https://www.moneysavingexpert.com/savings/lifetime-isas/

Hi there  
I should've mentioned this sorry, I already have a Cash LISA with Nottingham BS paying 0.8%, may move it over to a S&S LISA in the event of a good buying opportunity in stocks  

eskbanker

dude7691 said:

2010 said:

No access within the term. The rate is not guaranteed, in order to comply with Sharia Law the rates listed are an expected profit rate. 

Yes it's not technically guaranteed, but as far as I know no UK based Sharia bank has failed to pay expected profit in the past  

Al Rayan missed some targets in 2008, as published at https://www.alrayanbank.co.uk/media/37102/actualsavingsprofitratesjanuary2008.pdf