Is it worth wait to see if interest rates rise, rather than invest in a fixed 3 year savings account

Rob_Canniff

I have a five figure sum sitting in a bank account doing nothing. Up to now I haven't invested it in a savings account or ISA because the annual interest return would have been so low (£100?) that I just wasn't motivated to do it ( I realise now I should have just got on and done it).

Now that interest rates are on the rise, and because I am pulling my finger out more generally I was intending to invest the sum in a 3 year fixed saving account in order to maximise interest (2.5%).

However the interest rate has pretty much doubled (?) since I last looked at investing about a year ago. And interest rates only seem to be going in one direction (i've just read a prediction that BoE base rates will rise from the current 0.75% to a peak of 2.0% in a year's time).

So it has just occurred to me that perhaps I should only invest for a shorter term (2.1% for a year or 2.4% over two years) and then see if there are newer savings options with higher interest rates?

I'm not asking anyone to give me specific financial advice. But I'd be grateful if anyone could let me know of any holes in my logic re. only investing for a year in anticipation of higher interest rate offers (I realise there are no guarantees re. interest rates). Am I missing any other considerations?

Thanks

bostonerimus

Ladder your investment. split the money between 1,2 and 3 year accounts

eskbanker

The fact that you're looking at locking the money away for years would suggest that it's not an emergency fund, so do you have any identified use for it?  If it's long term money, your only realistic prospect of preserving its real-terms value by keeping ahead of inflation would be to invest it, in the literal sense of investing (in funds, etc) as opposed to saving....

Albermarle

For savings accounts , the general recommendation is not to tie your money up currently for more than one year , due to further  probable increases in saving rates in the coming months .

It could be that it would be a better  idea to invest the money, or put it in your pension , if you were unlikely to need it for a few years.
However as we do not have any details about you it is difficult to say .

Olinda99

if it helps, my view is that fixed term savings rates will rise again this year - maybe more than once

CheekyMikey

Put it in Chase and get 1.5% and see what happens in the next month…I’m also expecting better fixed rate deals in May

Cus

If you think that interest rates are not going to go as high in the future than the market thinks, then go for it now.

Bigwheels1111

I have 2 large pots to invest in July and September.
I would like to fix for 2 or 3 year but with rates rising every other day in not keen to lock it away.
First option for me is put it in my Chase saver at 1.5%.
Then lock it away but for 1 year max.
The second pot might be locked into a 2 year deal. 

Covers both ways.

steampowered

If you have no immediate need for this money, you should consider investing it into a stocks & shares ISA.

This will get you a far better return than anything offered by a savings account.

Even the most competitive savings accounts pay less than inflation, so your money is getting eroded. 

refluxer

An alternative 'savings ladder' approach is to split your money into smaller sums and take out 1 Year Fixed Rate savers at desired intervals throughout the year - eg. £10k, £20k or £30k every 1, 2 or 3 months, depending on the sum involved and how much effort you want to put in. This allows you to take advantage of the best interest rate at the time and works well in the current climate of increasing rates. You could stash the initial lump sum in a Chase Saver @ 1.5% or maybe take advantage of a strategically-chosen Notice account, but only if rates improve as they're poor at the moment compared with Chase.

To give you an idea of how fast things are moving, the best 2 year fix on 23rd March was 2.05% and it only took a month for the best 1 year fix to catch up. I'm not currently fixing for any more than a year, although this decision may have to be revisited once rates top out, whenever that may be.

CheekyMikey

steampowered said:

If you have no immediate need for this money, you should consider investing it into a stocks & shares ISA.

This will get you a far better return than anything offered by a savings account.

Even the most competitive savings accounts pay less than inflation, so your money is getting eroded. 

With some popular fund prices well off their highs, it’s a reasonable time to be using up some dry powder I think, as long as you don’t plan to touch the money for a few years.