5 Year Savings - Opinions?

ChilliBob

I've decided I have more than enough savings in easy access around 2-2.75% so fixes should become the order of the day... 

I've been considering a 5 year fix - there's a few around 5%..  Whilst this is not that much higher than a one or two year fix, in two years, will the interest rate be lower?

I remember watching a Ramin Pension Craft video a few weeks ago where he predicted the rate would fall back in a couple of years or so.

If my maths is correct, with yearly interest, and compounding, a full 85k in a 5% account would net you:

23,483.93  Over the whole period (which you could spread out over tax years as it's paid yearly in most cases). Just wondering what the forum consensus is on these sort of accounts now - from what I can see rates are reducing across the board on the fixes - so the time to act seems to be now - I can't see the fixes increasing, can you guys? - Interest rates yes, but the fixes are decreasing based on predictions that rates don't need to go quite as high as first thought a few months ago. Curious to hear people's thoughts

Albermarle

Normally a 5 year fix will have a better rate than a one or two year. The provider has your money for longer and you have tied it up for longer, so you expect some benefit for that. So just the fact that 5 year fixes have similar rates to shorter ones, already tells you that overall rates are expected to drop over that period.

In my opinion (could be wrong) the Bof E rate will not go above 4% ( so less than was predicted) In fact the main dove on the committee has said they will not go up from todays rate.
So if you want a 5 year fix then probably now is a good a time as any.

Although many years ago I read that you should generally avoid fixing for that long, as it is too long a time frame and anything could happen ( like it has recently). Not sure whether that is good advice or not though.

RobM99

How about split the money into 1,3, and 5 year bonds? You'd be protected (a bit) against rate falls but lose out (a bit) if rates rise.

ChilliBob

Thanks @Albermarle glad to see the logic in my head has been validated about rates and where we are.

It's tempting, yep, we don't know where we are in five years, if I was a gambling man (I'm not lol), I'd not expect us to say have 10% interest rate, but who knows eh as the last few years have told us.

Perhaps I should do something along the lines of 20% of savings in 5 years, 40% in 1 years and 40% in easy access.

I know my Mum kicked herself for only putting X amount in something at 6.5% when she retired a few years back, but we can all be smart with hindsight.

Essentially I gusss it's a gamble as to where you think we will be in 4-5 years. 5% a year certainly isn't to be sniffed at for risk free if you ask me, when people are predicting say 9% for S&P etc. 

Millyonare

One way to think of it is that a +5% return for 5 years is probably what a lot of stockmarket investors would accept. For no risk (if done within FSCS guidelines), it's a pretty good "medium" return.

Not advice, etc.

Bacman

You have to be happy with whatever decision you make at the time; whether rates go up or down later. Also happy to lock money away for a few years with no access to it.

Bigwheels1111

By Feb I need 3 or 4 Five year fixed rate savings accounts.

Paid Annually away from the account for an income and tax reasons. All tax free for me.

Max of 80K in each account to be covered by FSCS, 80K + 4K interest.

So if bank goes undr you should get interes as well as capital back.

I was hoping for the 5 year deals to rise a bit after the 0.75% Boe rise but nothing yet.

I can wait a little bit longer to see.

Cash stashed at 2.81% & 2.76% & 2.72% for now.

Ratewatcher

Applied last week for Close Brothers 5 year at 5.05% - had confirmation email stating application under review. I had heard nothing - checked today, they approved my application immediately but at the lower rate of 4.9%. 5.05% rate has gone

Albermarle

Perhaps I should do something along the lines of 20% of savings in 5 years, 40% in 1 years and 40% in easy access.

As RobM99 suggested , some in the middle with a 3 year fix as well ?

Rheumatoid

Ratewatcher said:

Applied last week for Close Brothers 5 year at 5.05% - had confirmation email stating application under review. I had heard nothing - checked today, they approved my application immediately but at the lower rate of 4.9%. 5.05% rate has gone

Strange. I applied for one on 10/11 and one on 11/11 and both opened at 5.05. Funded them both today.

janusdesign

ChilliBob said:

If my maths is correct, with yearly interest, and compounding, a full 85k in a 5% account would net you:

23,483.93  Over the whole period (which you could spread out over tax years as it's paid yearly in most cases).

if you had £85k in just one 5-year fixed account, you might want to think about having the interest paid away to keep you within the FSCS limit - otherwise you could end up, if the bank went bust in year 4 or 5, of losing £20k+ in interest... not a pleasant thought!

no compounding would bring in £4,250 per year (£21,250 for 5 years) in interest - so £2k less over the 5-year period... then it's just a case of working out if the extra £2k is worth the risk of letting it compound in the one account.

the safer way, if you were going to put £85k away for 5 years, would be to split it between banks (with separate FSCS) - I know Secure Trust & Tandem are offering 5% to new customers, so £42.5k in each, compounded over 5 years, should net you around £12k in each account and keep you well within FSCS limits if you needed to open other accounts with them.

there's nothing to stop you opening, but not yet funding, these accounts today - you would have plenty of time to fund the accounts (30 and 14 days respectively)... then perhaps wait until after the Budget on Thursday morning, see if you think that's going to have any impact on your cash needs for the forthcoming period, and then decide whether to fund the accounts accordingly... same would apply for other year fixes too.