The Top Fixed Interest Savings Discussion Area

mlc2009

markets pricing in 6 percent base rate from BOE

have banks priced this in already in fixed rates?

I've noticed that easy access rates are usually -1 percent of base rate

mebu60

6% by when? 

Sg28

mebu60 said:

6% by when? 

December..

pecunianonolet

Secret2ndAccount said:

pecunianonolet said:

Secret2ndAccount said:

Remember also that spending is a very effective way to combat inflation. If you can afford it, and the purchase is reasonable, now is a good time. So redecorate; fix the plumbing; buy a more energy efficient freezer. All of those things will cost 8.7% more a year from now, and I don't see anyone offering 8.7% interest

Not sure if I understand your logic. You are saying that if I buy a new freezer today vs next year it is cheaper today? Do you have a crystall ball saying that when in June 2024 inflation numbers are published we will still have 8.7%? In which case, your claim would be correct. Should those numbers next year be reported to be 2.5% inflation. Your fridge would only be 2.5% more expensive. Should we enter deflation and the number would be -0.5% your fridge would be 0.5% cheaper next year.

The highest fixed rate available for 1 year is 5.7%. By buying now you will be ahead if inflation over the next 12 mths is > 5.7% (4.xx for taxpayers). However, before I dragged this thread off topic, it was about fixing your rate. The people here are ready to lock in - to take a guaranteed rate, even if they know there's a risk that it might turn out to have lost them money. 
If you buy now, it's not just a question of whether you gain or lose - it's a lock-in. You know you can afford a freezer today. You don't know if you can afford it tomorrow. 
I restate that spending money (sensibly) now is at least as good a hedge against inflation as putting that money in a fixed term account and hoping to beat CPI

I am sorry but you are now mixing things up: 

1. My point from above stands that if we assume the freezer inflation next year in June for reporting of May stands at 0%, the price of freezers has remained stable and unchanged. If freezer inflation is 2.5%, your freezer is now 2.5% more expensive than it was today. With a deflation of -0.5% for freezers, your price in 12 months is 0.5% lower as of today.

2. You now added additional bits into the mix.

Inflation today has been reported to be 8.7%. This means that all items in the "shopping basket" (goods and services) together are 8.7% more expensive compared to 12 months ago. The basket is reviewed on a regular basis and adjustments are made to the weights based on spending habits and patterns.

Now, you put a given sum into a bank account and fix for 1 year. The bank will pay you in return 8.7% interest. Now, we assume that when your term has ended inflation is still 8.7%. You now gained 8.7% nominal but in real terms you neither made profit nor a loss. Your spending power remained the same. 

You now say that a 1y fix is 5.7% and inflation reported today is 8.7%. So by fixing today for 5.7% and the assumption that inflation reported in 12 months time is still 8.7% it means you have a loss in real terms of 3%. You can now buy 3% less of goods and services as you were able to buy 12 months ago (today). If your bank would pay you 10% interest and inflation would remain unchanged, you could by a freezer and would have 1.3% more to spend. You made a profit in real terms.

Now, we assume you have some savings, let's say 10k, and think about what to do with those 10k. You can fix it for 1y at 5.7% or renovate your kitchen (for the new freezer).

You decide to invest the 10k into your kitchen renovation and not put it into a 5.7% fix. In 12 months time, you read in your new kitchen the news of inflation having been reported to be 3%. 

We can conclude now that if you would have postponed your renovation and put it in the fix, it would now cost you 10.300 for the same renovation job. If you would have put it into a 5.7% savings account you would have had 10.570. Now you could still afford to buy the 10.300 kitchen and would have 270 left for a fancy dinner and night out in the pub after.

If you would read in 12 months time in your kitchen that inflation is at 6%, you could conclude that by investing into your kitchen vs. the 5.7% fix your kitchen renovation turned out to be 0.3% cheaper. Congratulations, you were beating inflation by 0.3% by making that kitchen investment today. If you would have put it in the fix, you would have lost spending power of 0.3%.

The above illustrates nicely, why the BOE and other central banks around the world (we take Turkey as an exception) raise interest rates to combat inflation. It is to discourage spending, either with savings you already have or through borrowing. Especially borrowing becomes a lot more expensive.

This reduces demand for goods & services in the economy, hence prices come down. Obviously, there is always a lag before such measures take effect. Less demand for goods & services are reflected in the labour market, hence less demand for workers, less pressure on wages, etc. From a company perspective more supply of potential workes. 

As long as the economy swings around the 0.3 / -0.3 ish growth/recession not much will change and it will take significantly longer. Technically, we need a light car crash of the economy to reset things.

The property market and constant headlines of mortgage rates rising is, on an individual level sad and tragic, from a wider view needed. Too many bought with too little buffer or reserves. Government backed 95% LTV deals and stamp duty threshold changes did not help, the contrary, they fuelled the property bubble and we can now harvest the fruits of failed fiscal politics.

Now we could go further and look at imported inflation, productivity, scrutinise the labour market in more detail, look at investments, trade, etc, etc....

For simplification, income situation, tax, ISA's etc. have all been ignored in the example to bring the point across. 

Sorry for going way off topic but hopefully it helps to explain why 6.x or even 7.x is not a question of if, only a question of when.

ForumUser7

New 1 2 and 3 year Atom fixes at 5.60%
New 1 and 2 year Oxbury fixes at 5.59%

TiVo_Lad

ForumUser7 said:

New 1 2 and 3 year Atom fixes at 5.60%
New 1 and 2 year Oxbury fixes at 5.59%

Incredible. The Oak Bank 1 Yr Fix at 4.48% was market leading at the beginning of April!

SJMALBA

Hodge Bank 5 year @ 5.4% (monthly option 5.27%)
1k min.

https://hodgebank.co.uk/savings/personal-savings/personal-fixed-rate-account-bonds/

jaypers

Glad I held off a bit longer on fixing again. With todays 0.5% Base Rate increase, 6% fixed deals surely aren’t far away. 

Johnjdc

jaypers said:

Glad I held off a bit longer on fixing again. With todays 0.5% Base Rate increase, 6% fixed deals surely aren’t far away. 

Not sure. There's no inherent correlation between the spot rate and the long-term curve.

Indeed since the announcement, gilts are surging and the 1 year benchmark rate has therefore actually fallen, from 5.17% to 4.99% (and the 2 year from 5.08 to 4.88%).

Presumably this is because investors are concluding that the Bank of England is finally getting serious, and this means that while rates are going higher in the short term, they will start falling sooner as inflation does get under control.

Johnjdc

Johnjdc said:

jaypers said:

Glad I held off a bit longer on fixing again. With todays 0.5% Base Rate increase, 6% fixed deals surely aren’t far away. 

Not sure. There's no inherent correlation between the spot rate and the long-term curve.

Indeed since the announcement, gilts are surging and the 1 year benchmark rate has therefore actually fallen, from 5.17% to 4.99% (and the 2 year from 5.08 to 4.88%).

Presumably this is because investors are concluding that the Bank of England is finally getting serious, and this means that while rates are going higher in the short term, they will start falling sooner as inflation does get under control.

Replying to myself - the Bank of England Governor is speaking and rates are now up on the day again