To fixed bond, or not to fixed bond

rjgb

Morning all,

I am considering putting some money into a 1yr or 2yr fixed rate bond. There are several about at 7%.

However, with the rate of inflation increasing and pressure on the BoE to up the interest rate, would I be better off waiting for 6 months and hopefully grabbing a bond with a higher fixed rate? In the meantime I could put the cash into a no-notice savings account so I could pounce on a fixed rate bond once a higher rated one comes along.

Or do any/many of you think that savings rates won't increase significantly?

Cheers
RJGB

Speculator

Not sure if the BOE increasing rates will affect Fixed Rate Bonds. Fixed rate Bonds follow the interbank rates.

free4440273

we might - just might - see 7.5 (the top). But anything more than that would be a shocker (a very pleasant shocker

martinman3

Assuming that you have maxed out your cash ISAs, as you are a higher rate taxpayer you should seriously look at NS&I Index Linked Certificates http://www.nsandi.com/products/ilsc/index.jsp

For the 3 year term the return is RPI+1.0% tax free, you can withdraw part of your investment at any time, though you would get no interest on that part if you did that in first year. As RPI is currently is 4.3% "if" you could have purchased this issue 1 year ago you would have received 5.3% tax-free, for a higher rate taxpayer this is equivalent to 8.83% taxable. If you believe RPI inflation will increase further the return should be even better but note that the return is variable.

A married couple could invest £15000 each and another £15000 each if you open in trust for each other for each issue, max £120k possible using both 3 and 5 year issues.
See http://forums.moneysavingexpert.com/showpost.html?p=7738025&postcount=7

To cover all options you may wish to put some in NS&I certs and some in a fixed rate bond (one which does allow early closure if necessary).

I could have posted this on your other thread
http://forums.moneysavingexpert.com/showthread.html?p=11657659
but I put it here instead.:)

Hungerdunger

rjgb wrote: »

with the rate of inflation increasing and pressure on the BoE to up the interest rate, would I be better off waiting for 6 months and hopefully grabbing a bond with a higher fixed rate? In the meantime I could put the cash into a no-notice savings account so I could pounce on a fixed rate bond once a higher rated one comes along.

Or do any/many of you think that savings rates won't increase significantly?

I think the basic answer is that "No one knows". If we did we'd all be doing the same thing!

What you need to weigh up is the potential loss of keeping the money in a lower rate instant access account for, say, six months against investing it now at around 7%. And what if that higher rate never comes along?

If you're that worried, why not split your savings; invest some now in a fixed rate bond and keep some available for further bonds should rates increase?

BTW, you didn't mention ISAs. Is it safe to assume you've already put the maximum away for this year?

RayWolfe

Hungerdunger wrote: »

If you're that worried, why not split your savings; invest some now in a fixed rate bond and keep some available for further bonds should rates increase?

That IS the way to do it. You can;t expect to hit the top all the time with all your money. It is also a protection against always hitting the bottom. Many people on here have many FRBs at different rates.

newcastledave

So the expectation is that bond rates won't go much higher than they already are - 7% plus being a good deal. When interest rates were considerably higher back in the days of Major's govt, were bonds offered at rates much higher than this? Can anyone who was investing back then remember? 'Obviously' we won't see a return to rates nearing/over 10%, but if there is a rate rise are we likely to see bonds pushing towards 8%?

I ask the question even though it seems to be answered above - what do people think?

Speculator

TBH, no one knows. I am going to keep my money in a high interest instant access savings a/c paying 6.50%+ and wait.

newcastledave

Of course bond rates would have to rise to more than 7.5% to profit in keeping money away at 6.5 rather than investing now at 7%.

Decisions, decisions!