Is it a good time to go fixed rate?

isofa

Do you think it's a good time to switch to fixed rate 1 year accounts, such as 7% being offered widely on-line? Or stick with 6% instant access at the moment, in the hope in a month of two interest rates will be even higher (on fixed rate or instant access)?

kingmonkey

I think generally if you have money to fix then you should fix - unless you strongly believe that interest rates are going up and the banks don't believe.

tradetime

As always it depends a lot on individual circumstances, if you can absolutely without doubt tie your money into a fixed account then I think a 1 year fix is a good idea, particularly at 7%. I personally do not see the BOE aggressively raising rates anytime soon. I think in the current climate they are more likely to re-adjust their inflation target upwards. But as always that's just my opinion.

Milarky

Fixing longer than 1 year is for retirees only, really. No one else should tie up all (or even most) of their money for a longer period than this. It's not just the chance that rates will actually rise next year but also that you are placing it potentially* beyond reach

*should always check if early redemption is allowed - and if so, on what terms...

isofa

I guess it depends on your portfolio and how much you want to tie up, I've been quite happy having a fixed bond before, but it wasn't a massive chunk of my cash.

I certainly wasn't suggesting anyone tie up all their funds in a 1 year + fixed rate bond, that would be crazy. But a suitable amount to get a guaranteed rate can't be bad, as long as they don't need the money for the term (surely that's a prerequisite of opening such an account anyway?). Especially when so many people leave money languishing in poor paying old instant access high street accounts.

Most bonds allow you to cash in early, at a risk of loss of interest, although some don't allow this (I don't think Icesave allow it...), always check the T+Cs obviously.

LongTermLurker

Current rates are good, so it makes sense to lock a chunk away if you can. However, there's a general suggestion that you should keep 3-6 months' income in an instant access account - that could include term deposits that allow you to cash in early if desparate.

As you don't know if the rates will rise or fall, it makes sense to lock some in now and hold some in instant access so if they rise you can grab a bit of that as well - no different to 'Pound Cost Averaging' principles.

How long? Me thinks a year sounds right.

ManAtHome

Does anyone reckon el BankO will stick rates up half a percent or more (unless it's an "increase or die gringo" moment). I've been going for 1-3 year fixes for the last 18 months or so - will lose out if instant rates are over 8% by the end of this year and stay there for some time (election May 2010 folks...).

ed123_2

.....I think base rates are on a downward path but banks/bs set their rates using libor (inter bank rate) which actually increased recently. With the credit cruch we are in uncharted waters however I think base rates are on a downward path. I have read reports that indicate no change in base rate for the rest of 08 and down to 4% during 09 which I tend to agree with.

ManAtHome

But what effect do you think the "down to 4% during 09" will have..? My guess is little reduction in commercial rates as a direct result (not saying they won't drop of their own accord - doubt it but 09 is a long way down the road just yet), drop in the quid, increase in inflation - result: save a tenner on your mortgage, spend an extra twenty on everything else - bit like what's happening at the moment really...

LardyCake

Another 'Pound Cost Averaging' approach - why not spread your fixed rate deposit money over a range of terms?

For a few years now I have had my "fixed rate pot" divided more or less evenly between 1, 2 & 3 year term deposits. As they mature they get reinvested at 3 year term again. Currently my average return on fixed term deposits stands at 6.41% gross.

neil324

Well the BOE have said they expect inflation to peak at about 3.7% by the year end, my guess is thats probally being optimistic knowing them:eek: If there is any sign of this making its why into wage inflation, which it should, then rates are going to be jacked right up.