Bonds or instant access

tawse57

Even though many people seem to think IRs are going down this year, despite inflation being on the rise, I get the impression that many on here are opting for instant access accounts rather than 6 or 12 month guaranteed rate bonds -if you are doing this, why so?

Do you think IRs are going to go up re inflation? Do you prefer instant access and feel it is safer in this climate? Do you think the bonds are not offering that much better rates? Do you think that the banks, being desperate for savers, are going to have to keep instant access rates high in order to get in much needed money despite the BOE lowering interest rates?

dunstonh

many on here are opting for instant access accounts rather than 6 or 12 month guaranteed rate bonds -if you are doing this, why so?

Fixed term deposits (to give them the correct name as bonds mean something different) give certainty. Variable rates may go down and may go up but the expectation is that they will go down and therefore fixed rates look more attractive.

Do you think IRs are going to go up re inflation?

Although keeping inflation under control is important, it is likely to become a secondary concern to keeping the economy going. That is already evidenced by the fact that interest rates should be higher than they currently are if you were purely looking at inflation.

Do you prefer instant access and feel it is safer in this climate?

I'm not a big cash person anyway. I tend to utilise investments more.

Do you think the bonds are not offering that much better rates?

Ironically, I have been increasing my exposure to bonds but in the correct sense. i.e. Gilts and fixed interest funds.

With fixed term deposits its more a case of what the rate will be like over the term and then making a judgement call based on your opinion.

Do you think that the banks, being desperate for savers, are going to have to keep instant access rates high in order to get in much needed money despite the BOE lowering interest rates?

Not necessarily. The implict charge for savings accounts is typically around 1.2%. The margin has shown indications that it has fallen to around 1.1%. Its the margin that matters not the actual rate. The margin is the where the profit is.

HenrikJonsson

Sorry for hijacking your thread, but a related question:

Looking at Gilts on the Selftrade website, as I understand it, the Gross redemption yield indicates the fixed annual return on the invested capital, thus making most of the Gilts about 4.2-4.3% at the moment (although one or two are peaking at 4.9%)

Isn't this very low compared to a high-interest savings account? Or am I misunderstanding what the gross redeption yield is?

Any info appreciated.

dunstonh

Isn't this very low compared to a high-interest savings account? Or am I misunderstanding what the gross redeption yield is?

Its low compared to savings accounts now but if interest rates drop then the demand will pick up. Remember these are really for absolute security as well.

With other fixed rate funds made up of bonds and other fixed interest securities you can get over 9% yield currently. Some of these are looking quite attractive if you dont mind a small amount of fluctuation.

HenrikJonsson

Thank you for your reply dunstonh,

I would like to learn more about the fixed rate funds. Which ones are you referring to that make over 9% currently? And do you know a resource where I can learn more about fixed rate funds in general?