Worth locking into longer rates now?

CaptainWales

With inflation expected to fall but interest rates expected to go up, is it worth locking into say a 5 year fixed saving account now? i.e take advantage of rates now if the expectation is that overall interest rates will have fallen in 5 years time. I know this is hypothetical and nobody has a crystal ball but just interested to see what others think. 

TheBanker

Nobody can predict what will happen. Personally I've fixed a couple of accounts recently. The benefit is that the money has started to earn the higher fixed rate rather than being kept in an instant acces account. This will off-set part of any potential gain I could have got by waiting.

I also have plans for the money, so needed to fix by a certain date to make sure it matures before I need it back.

cwep2

Inflation data out this morning was above expectations, particularly core inflation (expected 6.2% actual 6.8%) which means expectations of the Bank of England rate have surged higher this morning and also Gilt yields. In short the market expects more rate hikes by BoE today than they did yesterday, and in financial markets you can get 0.3% higher yield for 2yr lending and 0.2% higher yield for 5yr lending (compared to yesterday) and probably more importantly this is on top of big moves up over the last week - the 2yr is up over 0.6% in a week and 5yr up over 0.5%.

Fixed savings accounts tend to lag these interest rate markets by weeks. Based on today's data and recent moves, I would expect the rates offered by fixed savings from 1-5yrs to go up quite a lot from what is being offered today.

Disclaimer: This is not financial advice, I am offering my own personal opinion on what is likely to happen

t1redmonkey

Inflation data this morning was disappointing by most economist's standards, so this likely means that there will be higher interest rate fixes coming out in the next few weeks as banks recalculate what they should be offering.

Expotter

Expectations now seem to be that interest rates will have to raise further, this from CNBC today

British pound falls, gilt yields climb on hot inflation print

The British pound fell 0.3% against the dollar and slipped by 0.1% against the euro after U.K. inflation came in hotter than forecast, with headline CPI at 8.7%, versus the 8.2% predicted in a Reuters economist poll.

Core inflation accelerated from 6.2% to 6.8%, fueling bets that the Bank of England will raise interest rates further.

U.K. bond yields were sharply higher, with the 10-year gilt yield up 8 basis points to 4.243% and the 2-year gilt yield up 22 basis points to 4.353%.

Longer term fix rates are more correlated to Gilt yields and these have been increasing lately, these are today's values: (Bloomberg)

Gilt Yields

NAME	COUPON	PRICE	YIELD	1 DAY	1 MONTH	1 YEAR	TIME (EDT)
GTGBP2Y:GOV UK Gilt 2 Year Yield	0.63	92.85	4.31%	+21	+54	+289	7:09 AM
GTGBP5Y:GOV UK Gilt 5 Year Yield	1.63	88.00	4.11%	+13	+47	+256	7:09 AM
GTGBP10Y:GOV UK Gilt 10 Year Yield	3.25	92.42	4.21%	+5	+43	+232	7:09 AM
GTGBP30Y:GOV UK Gilt 30 Year Yield	3.75	87.28	4.52%	-1	+41	+239	7:09 AM

In fact, we're getting dangerously close to the levels seen after the now infamous mini-budget of last year, what repercussions would that have I really don't know, but inflation doesn't seem to be going anywhere soon and what can the BoE do other than keep increasing interest rates. I guess we'll have to wait and see.

Millyonare

Have kept some cash in the back pocket, in case we see next month a 5.25% or 5.50% savings deal for 1, 1.5, 2 or 5 years.

But today's 8.7% inflation print was well within the expected 7-9% range (albeit toward the top end). And the headline consumer inflation trend now is clearly trending down (not up).

Personal view. Not investment advice, etc. Dyor.

boingy

None of us know the future, and if we did we'd already be filthy stinking rich and wouldn't spend our time on money forums!

My opinion is that interest rates are still on the up, but it's only my opinion. I think we'll see at least two more hikes so I'm avoiding tying up money for too long. I have a 1 year fix at 4.15% that matures in Jan 2024 but for everything else I'm bouncing money around to follow the best rates so I have a large wodge in Chip, a smaller amount in Kroo and the Kroo account feeds no less than six regular savings accounts which range from 5% to 7%. It's a lot to keep track of but apps make it much easier and I quite enjoy it. This is the first time in my life that I've had significant savings at a time when interest rates are decent.

I'm not sure I'll be brave enough or bold enough to go for a 5 year fix but I'll probably hop into a 2 year one when I think we're close to peak rates.

allegro120

boingy said:

None of us know the future, and if we did we'd already be filthy stinking rich and wouldn't spend our time on money forums!

My opinion is that interest rates are still on the up, but it's only my opinion. I think we'll see at least two more hikes so I'm avoiding tying up money for too long. I have a 1 year fix at 4.15% that matures in Jan 2024 but for everything else I'm bouncing money around to follow the best rates so I have a large wodge in Chip, a smaller amount in Kroo and the Kroo account feeds no less than six regular savings accounts which range from 5% to 7%. It's a lot to keep track of but apps make it much easier and I quite enjoy it. This is the first time in my life that I've had significant savings at a time when interest rates are decent.

I'm not sure I'll be brave enough or bold enough to go for a 5 year fix but I'll probably hop into a 2 year one when I think we're close to peak rates.

Similar here. I'm not a great fan of locking money for a long period especially when BoE rates keep going up. I spread 1.5% of my spare cash across 3 accounts, 12, 15 and 18 months and will leave it at that for the time being.