Oil prices & likely inflation - should fixed rates be avoided?

silvermum

Just wondering about this. Seems likely that the inflation will rise more than expected this year due to the oil/Iran situation.

Just wondering if fixing an ISA at say 4.5% may turn out to be a bad move?

What are people's thoughts?

flaneurs_lobster

My (possibly naïve) thoughts are that the people earning the big bucks who do this for a living have already priced this possibility into the 1-5 year fixed rate products that they sell.

You can get (close to) 4.5% in an easy access ISA today, park your money until you feel more able to fix.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81958540#Comment_81958540

Although the people earning the big bucks, went from predicting two interest rate cuts, to four increases almost overnight. I would say ( only an opinion ) that the BoE will look at the effect of energy prices on inflation, and then at the negative effect on the economy and decide to do nothing.

wmb194

Inflation from oil price shocks tends to be fleeting and they're ultimately disinflationary as they often lead to recessions. I wouldn't worry about it too much.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81958593#Comment_81958593

No I am suggesting they overreacted.

mills112

I would say only do 1 year fixed and no longer.

Nebulous2

I got an offer of a fixed rate ISA from Santander, at 4.5% for either 1, 2, 3 or 5 years.

I was quite surprised that they see the rate as level across the 5 years.

Altior

Ignore all of the noise, media click bait, 'forecasting' and run with what you think, is my advice.

Listening to people for technical guidance (how an ISA works, maxing pension opportunities, lowering tax etc) is perfectly sensible in my view. For example James Shack. However, nobody can see into the future, certainly not the markets. There is a lot of gravy in sounding like a voice of authority, but your guess is as good as theirs.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81958873#Comment_81958873

All other things being equal, you normally get a better interest rate for committing your money for a longer period.

So assuming this is being taken into account, Santander are actually assuming/predicting that interest rates will drop over slowly over the 5 years.

Nebulous2

https://forums.moneysavingexpert.com/discussion/comment/81958972#Comment_81958972

I'm not sure I've ever seen it level over that sort of timescale.

Sometimes longer fixes are paying more, sometimes they are paying less, depending on whether the bank thinks rates are going up or down. Usually it is a curve though.

At the same time, over a much longer timescale, I'm getting 5.4% with a gilt, and 2.1% above inflation with an index linked gilt.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81959004#Comment_81959004

It is unusual, but when the interest rate outlook has been more stable in the past, you got better rates just because your were tying your money up for longer. Probably that has got lost to some extent when interest rates keep jumping around.