Fixed Rate Bond Interest Rates

FloridaJim

Hi,

Looking for some thoughts/assistance regarding Fixed Rate Bond interest rates. I have a sum of money that I can afford to lock away for 2 or 3 years and have been waiting for the savings interest rate to (significantly) increase on the back of the 0.75% early November base rate increase. It’s been a few weeks now and there’s been very little upward movement, can someone explain why they haven’t increased in the same way they did after the previous base rate rise please?

Also, should I bite the bullet and invest now or are the savings rates likely to increase in the next few weeks?

Thanks very much.

t1redmonkey

They're not going to increase off the back of the November BOE meeting.  In the press releases/conferences after that, the BOE signalled to the market that they felt the market had got it wrong with how high the interest rates were going to go longer term.  Therefore almost all banks started pulling their existing fixed rate bonds and replacing them with lower interest rate ones.

The peak was late October/early November for longer fixed rate bonds prior to the BOE meeting when there were 5%+ rates available for 2,3,4, and 5 year bonds.

There is a possibility that rates on longer fixed term bonds go up again in the future of course, but that's not what the markets or the BOE are expecting at the moment, so it'll probably only happen if inflation gets out of control and the BOE have to take a more aggressive approach with their rate setting.

Band7

Long discussion: https://forums.moneysavingexpert.com/discussion/6405143/are-savings-rates-on-their-way-down/p1

Desk

t1redmonkey said:

They're not going to increase off the back of the November BOE meeting.  In the press releases/conferences after that, the BOE signalled to the market that they felt the market had got it wrong with how high the interest rates were going to go longer term.  Therefore almost all banks started pulling their existing fixed rate bonds and replacing them with lower interest rate ones.

The peak was late October/early November for longer fixed rate bonds prior to the BOE meeting when there were 5%+ rates available for 2,3,4, and 5 year bonds.

There is a possibility that rates on longer fixed term bonds go up again in the future of course, but that's not what the markets or the BOE are expecting at the moment, so it'll probably only happen if inflation gets out of control and the BOE have to take a more aggressive approach with their rate setting.

Absolutely.

The Financial Times is reporting here that global inflation is now likely to have peaked....

https://www.ft.com/content/85498afc-43d3-4525-bee0-7ea7c6c05b34

This would appear to support recent suggestions that the base rate will not now need to reach the heights which until recently had been forecast, and that indeed there might be the potential for it to decline.

This is global inflation, though, and we don't yet know how inflation will pan out in the UK specifically, where it might be a bit more sticky due to a number of factors. One factor is our very low unemployment, although that might change if we plunge into a deep recession. Another factor is the current demands for pay increases, which I understand could result in an inflationary cycle.

As it is, though, I think we're probably going to see the base rate peak at the high 3% or very low 4% at most before falling away.

I still think there's capacity for base rates to 'normalise' at around 5% over time, but I think it will take some time to re-acclimatise so as to give the housing market time to adjust.

Albermarle

Article from a couple of weeks ago.
Are fixed savings rates stalling? No new best buys have been launched for over a week | This is Money

Johnjdc

The long and the short of it is that expecting long-term fixed rate bonds to go up because the Bank of England increase the spot rate is much like expecting a new ice age because it's snowing on Tuesday. They might or might not move up and down together.