2 Year vs 5 Year Fix!

JakeHyde

Hi folks,
This is a weird one. I have a bit of savings. 
I can't decide what's the smartest thing to do with it.
I'd love to eventually put it into property, but I need to get a little more clued up first. 

I guess I'm on here to think out loud, and hope to get some insight from more experienced people. I'm already making good use of my ISA alloawnce, putting it into the S&P500.  Although that's looking a little unstable at the moment, with people saying the market will crash etc,

If you have a lump some of around £85k, in order to protect it, would you put it in a 2 year fix at 5%, or a 5 year fix at 4.53%?  -   I guess there are Pros and Cons to both options.

With the threat of interest rates falling over the next few years, a 5 year fix could make sense, but I'm sure a smarter person than myself could make that money work harder over that period. Maybe I will get more savvy over time.  

Would a 5 year fix be bonkers? Even just reading this back maybe a 2 year could be wiser, in case I need to have access to it. 🤷🏻‍♂️

Thank you in advance.

Bigwheels1111

It comes down to if you will need the money in 2 or 5 years.
I opted for 5 and 7 year fixed rate bonds.
As money will not be needed and I wanted a nice income.
Interest paid away.

The best 5 years today is, 

Hampshire Trust Bank 5 Year Bond (Issue 36) 4.54%.
https://moneyfactscompare.co.uk/savings-accounts/5-year-fixed-rate-bonds/?quick-links-first=false
Make sure rate order is checked for best rate.

Also you like many have 85k and FSCS stuck in your head.
Yes you get 85k protection, great.
Now look at it this way.
You put 85k in at 4.54% = £88,859 after the interest is added.
That puts you £3,859 above the 85k limit. A small risk I know but I was no happy with it.
So I did this,

Now put 81,250 at 4.54% = £84,938.75 with capital interest so fully covered.

As for is this bonkers, I fixed at 5%, 4.85%, 4.5%, 4.4% and a few others that I can’t recall right now.
That was the best rates in November 22, In 23 they jumped up again.
All I know is it gives me an income of over 10k a year tax free for 5 years, plus 2 more years on one account at 4.5%.
I’m happy.

The only thing for you will be the tax liability.

I use the interest and my emergency fund for The regular savings game.
Keep the spars cash in an easy access at 5.2% for the month.
On the last day or the month I move 3k into my bank to fund 12 regular savers.
All at 5.5% or above.
I have 8%, 7.5%, 7%, 6.5%, 6% 5.75% and the rest are 5.5%.

Good luck with you decision.

boingy

I've never been very comfortable with any fix longer than a year. Sometimes you win, sometimes you lose, but locking any significant money away for 5 years is not to be undertaken lightly in my view. Other views are available!

InvesterJones

First determine if you'll possibly need it before 5 years. If not, and you still can't decide, split it 50:50.

Janie2008

5 years is a long time and you mention gettting into property at some time. I would either go 2 years or 50:50.

Albermarle

boingy said:

I've never been very comfortable with any fix longer than a year. Sometimes you win, sometimes you lose, but locking any significant money away for 5 years is not to be undertaken lightly in my view. Other views are available!

I have read advice many times that best to avoid 5 year fixes, as your and the countries financial position could change so much in that time. However personally I am OK with 2 or 3 years.

Albermarle

And for my guess BoE % rate will be virtually the same come the end of the year if not higher, especially when we see a Labour government in power who will do their usual thing and bankrupt the country

The savings providers/banks predict future interest rates for their fixed term products based on their best estimations.

Presumably as a Labour Govt is a near certainty, they will have taken that into account and are still predicting lower interest rates in the coming years.

Londonlisa12

Albermarle said:

And for my guess BoE % rate will be virtually the same come the end of the year if not higher, especially when we see a Labour government in power who will do their usual thing and bankrupt the country

The savings providers/banks predict future interest rates for their fixed term products based on their best estimations.

Presumably as a Labour Govt is a near certainty, they will have taken that into account and are still predicting lower interest rates in the coming years.

Coming YEARS 😂😂😂😂😂 exactly  and like you say, just a prediction,
And we see in the above link where Schroeder said 9 months ago there was a zero chance of interest rates being at 5.25% presently.
The fact is they are using their “predictions “ as facts to justify paying much lower rates on fixed term bonds than they should and once again screwing over savers.
Its strange how FTB rates only go up after interest rates are actually increased, but lowered on their so called “predictions “

SeriousHoax

I always go for 1 year and 2 years fixes, but that's just me.

Millyonare

£85k x 5 years at 5.00% = £108,484
£85k x 2 years at 4.53% = £92,875

You're going to need 5.35% (or more) in years 3, 4 and 5 to beat the 5-year deal (before tax).

Fwiw, consensus interest-rate forecasts right now for 2026-2029 suggest 3-4% is more likely than 5-6%. So, you'd (probably) end up with £2-8k less cash in 5 years' time.

Not advice, etc. Just playing with numbers. Dyor.

InvesterJones

Millyonare said:

£85k x 5 years at 5.00% = £108,484
£85k x 2 years at 4.53% = £92,875

You're going to need 5.35% (or more) in years 3, 4 and 5 to beat the 5-year deal (before tax).

Fwiw, consensus interest-rate forecasts right now for 2026-2029 suggest 3-4% is more likely than 5-6%. So, you'd (probably) end up with £2-8k less cash in 5 years' time.

Not advice, etc. Just playing with numbers. Dyor.

Always helps to play with the right numbers though The two year rate is 5%, the five year is 4.53%.