longevity of current interest rates

Jimbouk

Morning all,

Would like people’s thoughts on interest rates on savings..

Personally, I think they have just about peaked but the dilemma is how long they are likely to stay at the current levels.

My wife and have just received a chunk of money from an inheritance and are toying with the idea of tying it for up to five years at the current interest rates. Obviously split between the two of us to gain the FSCS protection.

Rates currently on offer are up to 5.8% for a five-year fixed term, and slightly better for shorter terms. We do not want any risk with the investment and we will not require access to the money as we have other available easy-access reserves if required.

 We are maxed out on a mixture of stocks and shares and cash ISAs until 2024 but will have a separate 20k each to top those up in April.

We are both in our mid-50s retired with company pensions, no debt and homeowners.

 

Your thoughts and input would be greatly appreciated.

El_Torro

If you want to tie up your money in cash for 5 years then I think that now is probably as good a time as any to do it. Just my opinion of course, nobody knows for sure what interest rates will do in the next 5 years. 

Bear in mind that even at 5.80% annual interest there is no guarantee that the value of the money will keep up with inflation.

refluxer

Expectations seem to be that rates have peaked, but the same was said at the end of last year when fixed rates hit 5%. Many people locked in at those rates and therefore would (understandably) be wary of relying on 'expectations' from now on ! That said, the recent pause in the successive BoE base rate hikes undoubtedly changes things this time round, compared with the end of last year.

One way to spread the risk is to split the money into smaller chunks and take out fixed rate accounts for different durations.

Brie

considering that some banks have pulled their best rates I would think the market is heading down.  I rather like the previous poster's idea of splitting the money into different pots for different durations to give you more flexibility.  Maybe drop a bit into premium bonds just for the fun of it.

InvesterJones

Jimbouk said:

Morning all,

Would like people’s thoughts on interest rates on savings..

Personally, I think they have just about peaked but the dilemma is how long they are likely to stay at the current levels.

Depends on factors out of our control and beyond prediction - act on what the rates are now rather than trying to predict what they might be.

boingy

I think interest rates will be there or thereabouts for a year or two at least but I've never been comfortable tying up big chunks of money for any longer than a couple of years. A lot can happen to an economy in five years - there are currently people tied into long term fixes at 1% or 2%, because that seemed like a no brainer a few years ago. Only nine months ago folks were jumping on fixes at around 4%.

You don't say how much the inheritance is but given that you seem to be sorted for pensions etc I'd suggest putting at least some of it into a low cost tracker fund because of your timescale. That will most likely outperform any savings account across 5+ years.

jimjames

boingy said:

You don't say how much the inheritance is but given that you seem to be sorted for pensions etc I'd suggest putting at least some of it into a low cost tracker fund because of your timescale. That will most likely outperform any savings account across 5+ years.

Mid 50s pension would seem to be an ideal choice to get boost from tax relief. No worries about access as you can get it instantly. Obviously limited depending on income but I wouldn't rule it out.

Andreg

You don't mention your tax situation but I assume you are both paying income tax, maybe at the higher 40% rate.  I also  assume you already have an emergency fund of easy access savings which will use up your savings tax allowance.   So I would recommend you look for more tax efficient investments than fixed rate savings.  You might put a bit in a top-up pension.  Maybe index linked gilts on which you will only pay tax on the coupon, not on the large redemption payment.  Also premium bonds are tax free, and a bit of fun.

For what its worth, I guess interest rates will stay at the current level for the next couple of years, maybe even increase slightly.

Albermarle

The couple appear to have no earned income, so would be limited to adding £2,880 to a pension each tax year.
Also as they appear to be taxpayers, the benefit for doing so would only be £180 pa for a 20% taxpayer and negative for a 40% taxpayer.

We are both in our mid-50s retired with company pensions, no debt and homeowners.