One or two year bond?

miraclemeet

I have a lump sum of money I would like to invest into a fixed rate savings account. I won't need this money for the next 2 years, so I would be willing to put it into a 2 year bond.

However, I'm unsure about the interest forecast, am I better putting it into a 1 year bond and reinvesting it this time next year, or will I struggle to match the current interest rate by that time?

Heytheremrblue

I'm about to do the same and will stick it in NS&I Income Bonds ... 4.5% for 2 years if it goes up so be it

OldScientist

Sorry, I'm not going to answer your question as asked - nobody knows that interest rates will do. However, whatever you choose it might, with hindsight, turn out to the be the wrong decision. Perhaps a better question is how much difference might getting the decision wrong make?

For example, you choose a 2 year account, but the interest rates stay where they are over the next year (not impossible)

Best 2 year account is currently, 4.7% so £1000 would give about £1096 at the end of two years

Best 1 year account is 5%, assume second 1 year account is also 5%, so total would be £1102. In other words, you would give up about £8 per £1k invested - only you know whether this will be critical to the plans you have for the money or not.

Alternatively, you choose a 2 year account, but interest rates drop 0.5% over the next year (what people are perhaps expecting).

One year at 1.05 gives £1050, reinvest at 4.5% gives £1097, i.,e. about the same as the 2 year case.

If rates fall more than about 0.5%, then choosing the 2 year option would be better (but marginally, unless they fall much further than that).

Albermarle

miraclemeet said:

I have a lump sum of money I would like to invest into a fixed rate savings account. I won't need this money for the next 2 years, so I would be willing to put it into a 2 year bond.

However, I'm unsure about the interest forecast, am I better putting it into a 1 year bond and reinvesting it this time next year, or will I struggle to match the current interest rate by that time?

The only way to know the answer is to be able to see into the future, so it is a 50:50 decision. Maybe put half in each.

thunderroad88

Without knowing the amount, so I don’t know how much the small percentage of interest difference there most likely will be (either in your favour or not), I’d personally go for the 2 year option…I prefer longer term certainty at a good rate if I can get it and get on with other things.