Fixed Rates - is 5 years too long?

Nick_C

I've got £15K in regular savings accounts. Most of it is now in accounts paying 6.25 or 6.35%. Don't know whether to move to 1 year in SAGA at 6.97% or 5 years in Halifax at 6.85%

This is money that I am not going to need in the next 5 years, and I can max out my ISA allowance without touching it.

What would you do? Is 5 years too long for a fixed rate?

Lokolo

Most people say yes, because that far into future is aaaages away. For example, in 3 years time the rates could be 6/7%+ so you will be losing out.

But obviously if rates go down to 2/3% then you are gaining!

Its a risk, but are you willing to take it??

Steve_xx

I thinks it's far too long.

Looking at the state of things today I'd say that rates for savers are likely to rise in the short to medium term, as the banks need to attract retail savers to deposit cash with them due to the fact that most banks are having difficulty in sourcing cash from eachother. I can't see this situation changing anytime soon; at least not until the full extent of the banks' exposure to sub-prime debt is realised.

It seems that the Bank of Englands recent lowering of base rates has had little effect on savers rates. But it is noticeable that several banks have actually increased their lending rates since base rate was lowered. This is indeed telling that base rates seem not to be figuring too prominantly for either savers or borrowers, at least that's the case at the moment.

kingmonkey

you could do a fixed rate ladder with some money maturing every year.

Old_Slaphead

I'm considering the Halifax 5 year fix - but only with a relatively small proportion of my savings (around 5%). I few years back I did a 5 year fix with GE Capital at 7.35% and it turned out to be my best 'negligible-risk' investment over the past 10 years. If rates go down you'll get some cushioning from the fall and if they do go up, I'd be very surprised to see them average 7%+ over the full 5 years.

free4440273

I was also considering the Halifax web-saver fixed rate at 6.85 (five yrs): i'm still undecided but I probably will go for it: 7+ seems to be a barrier: it's anyone's guess really....but I still think 6.85 is attractive:)

oldfella

5 years is a long time - are you sure there is no chance you might need the money in that time

purch

Fixed Rates - is 5 years too long?

Only if rates go higher and stay there in the meantime

If they go lower and stay there is is probably too short

bristolleedsfan

purch wrote: »

Only if rates go higher and stay there in the meantime

If they go lower and stay there is is probably too short

Or if someones circumstances change and they need the funds sooner than 5 years, then 5 years will have been too long a period to have fixed. :rotfl:

Milarky

The main issue isn't the particular rate - it's lack of access to savings. You have about a five times likelihood of needing those savings before the term than you would have in a one year product.

The penalty for early withdrawal/closure is 6 days interest per 30 days remaining

examples:

Close after 6 months - 54 months - roughly 10 months penalty (-4 months interest!)
Close after 12 months - 48/5 or 9.6 months (about 20% expected interest)
Close after 18 months - about 8.4 months (about 53% expected interest)
Close after 24 months - about 7.2 months (about 70% expected interest)
Close after 30 months - about 6 months (about 80% expected interest)
Close after 36 months - about 4.8 months (about 87% expected interest)
Close after 42 months - about 3.6 months (about 90% expected interest)
Close after 48 months - about 2.4 months (about 95% expected interest)
Close after 54 months - about 1.2 months (about 98% expected interest)

Milarky

Just compiled some actual rates of return assuming 20% tax is payable for early surrender
Mths--Net (%pa)---Gross(%pa)
6 -4.43% -5.53%
12 1.08% 1.35%
18 2.96% 3.70%
24 3.89% 4.86%
30 4.44% 5.55%
36 4.80% 6.00%
42 5.05% 6.31%
48 5.23% 6.53%
54 5.36% 6.70%
60 5.46% 6.83%