Are banks going to increase interest rates on Term Deposits. 11 February at 6:34AM in Savings & investments 21 replies 1.7K views

skray

Hi
From experience could anybody estimate how long the banks usually take to raise the interest rates (if at all) on Cash ISA and other fixed term deposits following the Bank of England interest rate rise. The BoE has recently raised the interest from 3.5 to 4% but I cannot see the interest rates for savings and term deposit accounts going up except for Virgin Money now offering 4% up from 3.8% on 1 year Cash ISA, apart from some instant access accounts as well.
I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty) but want to make sure I am availing the best interest available.
That is should I try applying for 3.8% - 4% currently available or wait longer.
There are other term deposits maturing soon - should I hold the maturity proceeds in instant access accounts or reinvest for fixed term at best rate available locking the money away.
Thanks in advance. 

metrobus

With the billions we gave them in QE they do not need to, their coffers are bursting.
If they all stick together and offer pathetic rates what do you do, apart from put your money in higher risk investments.

Qyburn

Fixed rate deals probably already accounted for this latest rise, and for expected rates over the next year or so.

skray

Qyburn said:

Fixed rate deals probably already accounted for this latest rise, and for expected rates over the next year or so.

Not Sure. I was checking at NSE website only - 1 year rate still hovering around 4.15 mark same as before latest interest rate rise. For Cash ISA only Virgin Money increased from 3.8 to 4%. Barclays still at 4% same as before.

adindas

skray said:

Hi
From experience could anybody estimate how long the banks usually take to raise the interest rates (if at all) on Cash ISA and other fixed term deposits following the Bank of England interest rate rise. The BoE has recently raised the interest from 3.5 to 4% but I cannot see the interest rates for savings and term deposit accounts going up except for Virgin Money now offering 4% up from 3.8% on 1 year Cash ISA, apart from some instant access accounts as well.
I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty) but want to make sure I am availing the best interest available.
That is should I try applying for 3.8% - 4% currently available or wait longer.
There are other term deposits maturing soon - should I hold the maturity proceeds in instant access accounts or reinvest for fixed term at best rate available locking the money away.
Thanks in advance. 

There is a direct correlation between the BoE and Bank/lenders interest rate

https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

Yes, it is currently sitting @4.00% including Thursday 2 February 2023, 0.5 percentage points to 4%

As it is still quite new some banks might not response to this rate interest hike yet. So it is very high chance some will response with 4%+.

The Bank of England will next meet on 23rd March 2023  to decide what level interest rates should be set at. It could be in any direction. The BoE make decision about the interest rate is based on the inflation rate. So considering the current inflation rate. The chance to go lower than 4% is much smaller but not impossible.

So work out the rate 0.9% penalty and the interest of 4% (say) which one is better to make the decision.

You could watch it out from this space if you are aiming 1ys fixed rate cash ISA.

https://moneyfacts.co.uk/isa/1-year-fixed-rate-isas/

Noone knows what the future rate rather than talking about the chance. So certainly not a recommendation to strike now or to wait.

SaveTheEuro

Things are moving in the opposite direction. I see a one year bond with Nationwide is now 3.75%. It was 4% not so long ago.

Qyburn

skray said:Not Sure. I was checking at NSE website only - 1 year rate still hovering around 4.15 mark same as before latest interest rate rise. For Cash ISA only Virgin Money increased from 3.8 to 4%. Barclays still at 4% same as before.

Virgin already had a One Year ISA at 4.25% and that one hasn't been increased. 

Johnjdc

adindas said:

skray said:

Hi
From experience could anybody estimate how long the banks usually take to raise the interest rates (if at all) on Cash ISA and other fixed term deposits following the Bank of England interest rate rise. The BoE has recently raised the interest from 3.5 to 4% but I cannot see the interest rates for savings and term deposit accounts going up except for Virgin Money now offering 4% up from 3.8% on 1 year Cash ISA, apart from some instant access accounts as well.
I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty) but want to make sure I am availing the best interest available.
That is should I try applying for 3.8% - 4% currently available or wait longer.

There is a direct correlation between the BoE and Bank/lenders interest rate

https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

Yes, it is currently sitting @4.00% including Thursday 2 February 2023, 0.5 percentage points to 4%

As it is still quite new some banks might not response to this rate interest hike yet. So it is very high chance some will response with 4%+.

Fixed rates have very little to do with the bank rate at any given moment let alone a direct correlation.

Fixed rates have been falling since the autumn although the bank has been consistently raising spot rates.

You're better off looking at gilts to see what might happen although that's not a direct correlation either - SONIA rates are even better but I can only find the spot rates not a graph.

One year accounts might go up a bit based on what's happened over the last few weeks with gilts but the two year is fairly flat.

https://www.marketwatch.com/investing/Bond/TMBMKGB-01Y?countryCode=BX

adindas

Johnjdc said:

adindas said:

skray said:

Hi
From experience could anybody estimate how long the banks usually take to raise the interest rates (if at all) on Cash ISA and other fixed term deposits following the Bank of England interest rate rise. The BoE has recently raised the interest from 3.5 to 4% but I cannot see the interest rates for savings and term deposit accounts going up except for Virgin Money now offering 4% up from 3.8% on 1 year Cash ISA, apart from some instant access accounts as well.
I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty) but want to make sure I am availing the best interest available.
That is should I try applying for 3.8% - 4% currently available or wait longer.

There is a direct correlation between the BoE and Bank/lenders interest rate

https://www.bankofengland.co.uk/monetary-policy/the-interest-rate-bank-rate

Yes, it is currently sitting @4.00% including Thursday 2 February 2023, 0.5 percentage points to 4%

As it is still quite new some banks might not response to this rate interest hike yet. So it is very high chance some will response with 4%+.

Fixed rates have very little to do with the bank rate at any given moment let alone a direct correlation.

Fixed rates have been falling since the autumn although the bank has been consistently raising spot rates.

You're better off looking at gilts to see what might happen although that's not a direct correlation either - SONIA rates are even better but I can only find the spot rates not a graph.

One year accounts might go up a bit based on what's happened over the last few weeks with gilts but the two year is fairly flat.

https://www.marketwatch.com/investing/Bond/TMBMKGB-01Y?countryCode=BX

Are we talking about any given moment here  or until within the window up to mid year ??

"I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty)"

And you are advising people to invest in gilt while the op clearly indicate about about Cash ISA?

We are not going to start the discussion about investing in Bonds, Gilts vs cash saving in short term. Read a few thread regarding investing in Bond, Gilts vs equity there are already some people are complaining about their bond performance in this forum where they have got their finger burnt investing in it.

To me if I am in this situation and only for short term, I prefer to put it into various saving mixing up of RSAs, one year fixed rate instant access, where I could get a better return. There are RSA paying 7%, reasonable number are paying 5% with majority are easy access, so you could always divert it to another one when the top dog come to the market and you are suggesting 3.729% one year gilt in here ????????????

https://www.marketwatch.com/investing/Bond/TMBMKGB-01Y?countryCode=BX

Each to their own but to me it is a no brainier what to choose!!!

eskbanker

skray said:

From experience could anybody estimate how long the banks usually take to raise the interest rates (if at all) on Cash ISA and other fixed term deposits following the Bank of England interest rate rise. The BoE has recently raised the interest from 3.5 to 4% but I cannot see the interest rates for savings and term deposit accounts going up except for Virgin Money now offering 4% up from 3.8% on 1 year Cash ISA, apart from some instant access accounts as well.
I have a 2 year Cash ISA maturing sometime mid-2023 at 0.9%. I intend to close it prematurely and reinvest (I will make a net profit even after paying a penalty) but want to make sure I am availing the best interest available.
That is should I try applying for 3.8% - 4% currently available or wait longer.
There are other term deposits maturing soon - should I hold the maturity proceeds in instant access accounts or reinvest for fixed term at best rate available locking the money away.

There have been quite a few threads on here about how fixed term rates are inherently forward-looking and so are less likely to respond to short term base rate movements, i.e. any institution offering a fixed two year rate is using intelligence about what happens throughout 2023 and 2024, rather than being driven by a BoE decision that was widely forecast and is likely to be superseded by others in future.

In one such thread, a poster tracked fixed term products, both taxable and ISA, which showed that anything over a year has been on the way down since the autumn:

https://forums.moneysavingexpert.com/discussion/comment/79791507/#Comment_79791507

GeoffTF

Johnjdc said:

You're better off looking at gilts to see what might happen although that's not a direct correlation either - SONIA rates are even better but I can only find the spot rates not a graph.

You will find graphs here:

https://www.global-rates.com/en/interest-rates/sonia/sonia.aspx

Here is the official historical data for SONIA:

https://www.bankofengland.co.uk/markets/sonia-benchmark

This is the money market fund that I am using:

https://www.hl.co.uk/funds/fund-discounts,-prices--and--factsheets/search-results/r/royal-london-short-term-money-market-class-y-income