Does a five year fixed rate bond make sense or is it too long?

jak22

This was specifically about five year fixed rate bonds which quite a few may be thinking about now the interest return is not dissimilar to dividend income. Being a new poster doesnt imply a lack of knowledge but when a 111K poster mentions using cash savings for income is quite high risk then anyone thinking of long term savings might want to know just what those risk factors are - but the effect of inflation on savings and the effect of not compounding monthly interest are more like certainties and considerations rather than some little known risk.

jcontest

Albermarle said:

However if you stick to mainstream diversified funds, the chance of them becoming worthless is zero

Avoiding investment risk is actually quite risky for your wallet.

Harmful perhaps, but not risky.

If you know your buying power will be eroded by 3% per year then it's not something that will sneak up and bite you.

I agree, you should mix funds.

ChilliBob

If you're considering it I'd jump in quick. I actually started a very similar thread a couple of weeks ago, the rates have declined since then too. 

My end decision was to work out how much I wanted to lock away and then blend a combination of 1,2,3 5 year options.

Much like the ratio of cash to investments is still something I haven't 100% decided on. 

But yeah, tl Dr, get in quick if you want a 5 year fix I'd say.

Replies are not dissimilar to my thread, funnily enough, but still an interesting read and still some great food for thought from the experienced regular contributors  

ruelle

How about a fixed rate cash ISA? You can still access your money - you'll just be charged a hefty penalty for withdrawing early (usually a year's worth of interest for 5 year fixes).

kwangomango

Black_Cat2 said:

Just my experience on these long term fixes.. it's important to consider your tax situation when the bond matures. 

Personally I have opted for a monthly income so that the tax is (hopefully) in the current tax year 🐈

Even if the interest is compounded rather than paid away, you are still liable for tax on the interest each year rather than the total interest amount at the end of the fifth year.

Albermarle

kwangomango said:

Black_Cat2 said:

Just my experience on these long term fixes.. it's important to consider your tax situation when the bond matures. 

Personally I have opted for a monthly income so that the tax is (hopefully) in the current tax year 🐈

Even if the interest is compounded rather than paid away, you are still liable for tax on the interest each year rather than the total interest amount at the end of the fifth year.

There have been quite a few threads on this issue and there appears to be  not total clarity on this  issue. It appears if there is no option for the interest to be paid away annually, then the interest might be only reported to HMRC at the end of the fix.

Interest at maturity on savings — MoneySavingExpert Forum

P933alilli

I rang Gatehouse bank today and was told that i'd get a statement annually and its up to me to report it to HMRC! If i left it then it would incur a large tax bill in full at maturity

Bobziz

Collyflower1 said:

I rang Gatehouse bank today and was told that i'd get a statement annually and its up to me to report it to HMRC! If i left it then it would incur a large tax bill in full at maturity

I wonder whether that relates to the fact that gatehouse don't pay 'interest' and therefore are not required to report it themselves 🤔

Bigwheels1111

Bobziz said:

Collyflower1 said:

I rang Gatehouse bank today and was told that i'd get a statement annually and its up to me to report it to HMRC! If i left it then it would incur a large tax bill in full at maturity

I wonder whether that relates to the fact that gatehouse don't pay 'interest' and therefore are not required to report it themselves 🤔

I have a 5 year fixed with Gatehouse, interest paid away yearly.
Also the same with Tandem 5 year.
Will report interest to HMRC each year and do a tax return.

masonic

Bobziz said:

Collyflower1 said:

I rang Gatehouse bank today and was told that i'd get a statement annually and its up to me to report it to HMRC! If i left it then it would incur a large tax bill in full at maturity

I wonder whether that relates to the fact that gatehouse don't pay 'interest' and therefore are not required to report it themselves 🤔

The requirements for reporting 'profit' are identical to reporting interest (you may be able to convince Allah...)

They are right that it is up to you whether you notify HMRC, as many do not and just let their tax code get adjusted as needed to collect any unpaid tax. Only those already on self-assessment or those earning in excess of £10k income from savings/P2P/bonds etc need to pro-actively report it.