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Long term interest rate fix

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If you had some spare cash you could afford to tie up longer term, what would you fix for - 1 Year, 2 Years, 3 years? I know interest rates were forecast to fall before the stock market/recession scares but would anybody hazard a guess where they will be in 1 - 2 years time?

Comments

  • i cant see rates going anywhere except downwards over this year and possibly levelling off at some time next. indeed, future contracts for sterling for spring next year are already pricing in rates of 4.5% right now in the markets!

    ..so certainly i wouldnt hesitate to take a decent 2 year interest fix right now :)
  • Froglet
    Froglet Posts: 2,798 Forumite
    Part of the Furniture 1,000 Posts Name Dropper Combo Breaker
    I've hedged my bets by fixing my old isa for 3 years,hubbys for 2 years and now the Northern Rock bond for one year!!One of them must be a winner ,hopefully more the way they are all predicting the downturn in rates.
  • ManAtHome
    ManAtHome Posts: 8,512 Forumite
    Part of the Furniture Combo Breaker
    I have a mix of 1, 2,and 3 year fixes as well as NS&I index-linked certs (reasonable hedge against "independent" BoE saying "sod inflation, we need a mini boom before the next election"...). If you pay higher-rate tax, NS&I certs first, standard-rate - split between 2 year and NS&I, non taxpayer, go for the best 2-year (assuming you have fully funded cash ISAs already).

    The above is just what I've been doing over the last few months - it'll work for me, but no gurantees for anyone else...
  • Jonbvn
    Jonbvn Posts: 5,562 Forumite
    Part of the Furniture 1,000 Posts
    ManAtHome wrote: »
    I have a mix of 1, 2,and 3 year fixes as well as NS&I index-linked certs (reasonable hedge against "independent" BoE saying "sod inflation, we need a mini boom before the next election"...). If you pay higher-rate tax, NS&I certs first, standard-rate - split between 2 year and NS&I, non taxpayer, go for the best 2-year (assuming you have fully funded cash ISAs already).

    The above is just what I've been doing over the last few months - it'll work for me, but no guarantees for anyone else...

    M@H,

    Agree with the above. Index Linked certs look like a no brainer, given that interest rates will drop, and inflation must rise.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • Jonbvn wrote: »
    M@H,

    Agree with the above. Index Linked certs look like a no brainer, given that interest rates will drop, and inflation must rise.

    Really? Surely its nowhere near as clear cut as that. The BoEs SOLE remit is to target inflation. Period. While I can't remember the current numbers, I'm pretty sure its up near the top of the target band. And inflationary pressures are still largely on the upside, not downside. Oil, food etc. So while other considerations may point to pressure to lower rates, the one thing BoE is meant to target tends to point to staying still. I doubt in the current climate it could stomach raising, which is arguably what it should be doing to keep inflation in check.

    Still, I've hedged by increasing the amount I have in fixed term.
  • tradetime
    tradetime Posts: 3,200 Forumite
    Really? Surely its nowhere near as clear cut as that. The BoEs SOLE remit is to target inflation. Period. While I can't remember the current numbers, I'm pretty sure its up near the top of the target band. And inflationary pressures are still largely on the upside, not downside. Oil, food etc. So while other considerations may point to pressure to lower rates, the one thing BoE is meant to target tends to point to staying still. I doubt in the current climate it could stomach raising, which is arguably what it should be doing to keep inflation in check.

    Still, I've hedged by increasing the amount I have in fixed term.

    Hi Ealing, not sure if I would go as far as to say "SOLE" although it certainly would be said to be their primary role, they also have a duty to provide economic stimulus, and it is likely that they will see the impending slowdown in the economy as being of more risk than inflation at this time since a slowing economy should cap inflation (unless we enter stagflation) thus I suspect they will cut wih the view to creating the so called soft landing.
    Hope for the best.....Plan for the worst!

    "Never in the history of the world has there been a situation so bad that the government can't make it worse." Unknown
  • ManAtHome
    ManAtHome Posts: 8,512 Forumite
    Part of the Furniture Combo Breaker
    No, it isn't their sole remit, far from it - quotes from the 1998 act (full bit here http://archive.treasury.gov.uk/press/2000/p69_00.html)

    "The Bank of England Act came into effect on 1 June 1998. The Act states that in relation to monetary policy, the objectives of the Bank of England shall be:
    (a) to maintain price stability, and
    (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.

    Under "Maintain[ing] price stability...

    The framework takes into account that any economy at some point can suffer from external events or temporary difficulties, often beyond its control. The framework is based on the recognition that the actual inflation rate will on occasions depart from its target as a result of shocks and disturbances. Attempts to keep inflation at the inflation target in these circumstances may cause undesirable volatility in output.
    "
    So basically their remit is to whatever the govt tell them to do... (as presumably said govt decide on the "shocks and disturbances" bit).
  • (a) to maintain price stability, and
    (b) subject to that, to support the economic policy of Her Majesty’s Government, including its objectives for growth and employment.
    ...and the key here is the phrase "subject to that".

    Reducing the use of language to pure logic means that objective (b) only comes into play as long as it doesn't upset objective (a).

    However, I'm willing to acknowledge that political objectives will almost certainly end up polluting this logic when push comes to shove.

    Nonetheless, if the bank wanted to stand its ground on a point of contract law, the law would fall on the side of controlling inflation (notwithstanding the government choosing to rewrite the contract if they didn't get their way).

    For the avoidance of doubt...I am NOT a lawyer.

    RM
    For anyone wishing to contact me privately to ask me a question, can I ask that you email me directly as my PM box is often full.
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