Is a 5-year fixed around 4.6% a no-brainer right now

TobyCG

Looking at fixed rate bonds.  With interest rates expected to start falling soon, I'm wondering if a longer term fixed bond would be a good idea right now.

Seems a 5-year fixed is around the 4.6% mark and it feels like giving up a bit on the interest rate might pay dividends in a couple of years if rates have dropped significantly by then.

It's basically the fixed-rate mortgage gamble but in reverse.

Thoughts?

MX5huggy

If you can lock money away for 5 years plus then I would be investing it. 

But yes it’s a 5 year bet on Interest rates not going up significantly. If the last 15 plus years has proved anything it’s that we can’t predict anything. I’ve never locked up savings always just chasing the best easy access rate, yet I’ve had a 5 year fix and then a 10 year fix on my mortgage, the latter looked like a duff move 2 years in to it in 2020 but now I look like a financial genius! 

aroominyork

Since that rate is easily available it means the market thinks rates will fall less than you think they will. Up to you to decide who is right.

4.6% for basic rate taxpayers (after PSA) is 3.7% net. Low coupon five year gilts (TG29/TR29) are paying about the same after tax on the coupon and give the option to sell before maturity.

slinger2

At my age/health 5 years seems too long but these things are always a judgement call. Not so long ago 5-year rates were about 1% but then a year ago RCI bank were offering 5.8%.

Bigwheels1111

I opted for 5 & 7 year fixed with annual payouts.

To provide me with a nice income.

My circumstances drastically changed within 6 months.

I kind of wish I had not fixed for so long.

3 years 4 months until I can access my savings.

I can cope but you might not be able too.

No one knows the future, I think rates will drop like falling off a cliff.

wmb194

TobyCG said:

Looking at fixed rate bonds.  With interest rates expected to start falling soon, I'm wondering if a longer term fixed bond would be a good idea right now.

Seems a 5-year fixed is around the 4.6% mark and it feels like giving up a bit on the interest rate might pay dividends in a couple of years if rates have dropped significantly by then.

It's basically the fixed-rate mortgage gamble but in reverse.

Thoughts?

It isn’t all or nothing so to hedge your bets and give you flexibility you could build a ‘ladder’ where you have multiple bonds with differing durations.

Personally, over that duration I wouldn’t be interested anything less than 5%. 

boingy

It's not just about the interest rate movements. It's also about whether you are comfortable locking that money away for five years, because you can't have it back until it matures. For that reason I tend to stick to one year fixes or thereabouts. My 5 year stuff tends to get invested.

Ocelot

I had the odd 5 year fix when I was in my 30s, and would go for another if I were still that age, but it's too long a term for someone in their late 50s!

It also depends on whether you are a higher rate tax payer or not.

OldScientist

Looking at the forward rate curves (which strictly only apply to gilts) at https://www.bankofengland.co.uk/statistics/yield-curves, it would appear that the market (who, of course, can no more predict the future than any of us), implies that nominal rates will be about 4% in 5 years time.

VNX

wmb194 said:

TobyCG said:

Looking at fixed rate bonds.  With interest rates expected to start falling soon, I'm wondering if a longer term fixed bond would be a good idea right now.

Seems a 5-year fixed is around the 4.6% mark and it feels like giving up a bit on the interest rate might pay dividends in a couple of years if rates have dropped significantly by then.

It's basically the fixed-rate mortgage gamble but in reverse.

Thoughts?

It isn’t all or nothing so to hedge your bets and give you flexibility you could build a ‘ladder’ where you have multiple bonds with differing durations.

Personally, over that duration I wouldn’t be interested anything less than 5%. 

This, I have enough in easy access so the rest I e locked away, one, two, three, four and five year the rest of my monies.

five-year or less no one should be locking away monies they might need on,y ever lock away monies yiu know for sure you won’t need 

OldScientist

While this is probably drifting off topic, another approach is to have a rolling ladder of fixed term accounts.

For example, put half the money in a 1 year account and half in a 2 year account. After a year, the 1 year account matures and whatever you don't need you place in a new 2 year account, and so on. A 5 year rolling ladder would have 5 accounts etc., but about 1/5th of the cash is always available each year. Since we are in retirement, our ladder is somewhat easier with two one year accounts maturing 6 months apart to match with our two portfolio withdrawals per year.