100% in 1 year fixed saver, or 50% fixed for 1 year and 50% fixed for 2 years

GianBel

Friend has 15K in savings. She wants to keep 5K for emergencies, and while she's never "invested", the 6.05% rates offered on fixed saver accounts seem to have convinced her to put her savings away for a longer period of time.

I'm suggesting she puts the full 10K away for 2 years, as I can't see rates improving further - but I made it clear I don't have a crystal ball.

She's countered with 5K for 1 year, and 5K for 2 years.

Would love to hear some other thoughts and opinions. Happy to answer anything I may have missed.

SavingsBoo

My thinking for my 'emergency' pot is to have enough to replace my car and something going wrong in the house (boiler or roof) so to me £5k doesn't seem like an awful lot for emergencies although obviously I don't know her circumstances.

So without knowing any more, her proposal of £5k for one year and £5k for two years seems sensible as it would give her another £5k emergency pot in a years time if she had to spend all of the first emergency pot, if that makes sense?  And the option to put into another fix if the first emergency pot was still intact.

refluxer

I would imagine many people in a similar position will be waiting to see what happens to fixed rates following this morning's BoE rate increase. I know I certainly am, at least.

There is a lot of competition in that 6 - 6.10% region for 1 and 2 year fixes at the moment so, if rates were to start falling, they won't all drop overnight. Personally, I would anticipate that further rises are likely but possibly not to the extent that we've seen in recent months. As you say though, no-one has a crystal ball. 

If £15k is the total amount of her savings, then it really wouldn't be wise to lock £10k of it away for 2 years, IMO. I'm not sure that £5k is enough of a (worst case) emergency fund these days, personally.

Where does she have her savings, currently ? The best easy access rates are around 4.60% and further increases could be on the way due to the base rate rise this morning.

Swipe

Personally, I wouldn't have less than £15K for an emergency fund so wouldn't lock any of it away, especially for such a small amount.

CheekyMikey

The “reward” for locking up £5k for a year versus keeping it readily accessible in an easy access account is £70 (£300 interest vs £230 interest) …your friend must decide if she really wants to risk not having emergency access to that money for that amount of return.

mebu60

GianBel said:

Friend has 15K in savings. She wants to keep 5K for emergencies, and while she's never "invested", the 6.05% rates offered on fixed saver accounts seem to have convinced her to put her savings away for a longer period of time.

I'm suggesting she puts the full 10K away for 2 years, as I can't see rates improving further - but I made it clear I don't have a crystal ball.

She's countered with 5K for 1 year, and 5K for 2 years.

Would love to hear some other thoughts and opinions. Happy to answer anything I may have missed.

Is the difference in interest on EA versus fixed on £10k worth the loss of access? Especially if EA increase slightly over the next few months. 

Shedman

Or perhaps some in a 90/95 day notice account eg Charter Savings Bank @ 5.25% so as to have some accessable at reasonably short notice

Bigwheels1111

How about an isa, pick the right one, ie low penalty for taking out the cash.
Virgin 1 year isa 5.71%, 60 day penalty on 10k = £93.86 if she needed the cash.

VNX

It’s all a very individual decision but,

for me, personally, I wouldn’t want less than 15k in easy access savings, I’d probably go lower (10k) except for the fact that I own a car and if the worst happened I’d need to replace it ASAP 

5k in easy access wouldn’t cover any big expense, if they were to keep 5k in easy access the rest I’d want in an ISA so I can get to it even if I paid a penalty 

GianBel

If she needs the cash in the interim, I can and will help.

mattywallace121

Basing financial planning on the assumption that a friend will loan you money if needed is a recipe for disaster.