Now could be a great time to buy a fixed rate bond, if the latest murmurings from the Bank of England are anything to go by.
But you’ll want to be careful not to inadvertently keep your money for more years than planned.
Last week, Bank of England Governor Andrew Bailey said he could be a little more aggressive in cutting interest rates. That would mean worse deals for savers.
We’ll have to wait until November 7 to find out what this means in practice: when the Bank’s Monetary Policy Committee next meets to decide whether to cut the base rate from its 5 percent level or leave it intact.
Industry insiders tell me that while easy-access accounts have had all the benefits recently, in terms of banks competing to win customized deals, fixed interest rates are becoming the trend of the month and demand for Longer-term bonds are growing.
Is it time to fix it? Industry insiders say fixed-rate deals are becoming the trend of the month and demand for longer-term bonds is growing.
It’s no surprise they are proving popular if rates fall, as fixed rate deals allow you to lock in a competitive rate for one or more years. The further rates fall, the greater the value of current fixed rate deals.
There is no way to guarantee what rates will do in the coming years, although money markets are pricing in cuts to 4.5 percent by the end of 2024.
But the actions taken by the banks in recent weeks reveal how they believe things will develop.
Savings providers including Nationwide, Yorkshire BS and Coventry do not currently offer fixed rate bonds that last more than one year. Other providers are also removing them or lowering the rate they offer.
Check the best Isa cash rates in our savings tables
This is probably because they don’t want to be stuck paying generous rates years from now if the base rate has fallen. If you decide on a fixed-rate account, you’ll get the most competitive offers if you lock it in for just one year.
But, if you plan to leave your cash untouched for several years, it’s probably better to close a longer-term deal now rather than signing a series of shorter-term deals each year.
Take, for example, the best one-year bond, which is from Union Bank of India at 5 per cent.
This is clearly better than the best two-year bond, which is 4.5 percent from Cynergy Bank.
However, if you took out the one-year bond, you would have to find another that paid at least 4.05 percent in one year to match the rate you would have received by opting for Cynergy’s two-year bond.
As rates continue to fall, reaching such an agreement appears increasingly unlikely within a year. The best three-year deal is 4.6 per cent from GB Bank, which is slightly higher than the best two-year deal.
Right now – with inflation at 2.2 percent – locking in a rate that’s more than double the cost of living, guaranteed for three years, seems like a big deal.
Only if inflation starts to skyrocket again will it prove to be a bad choice and you may wish you had opted for a shorter term.
That’s the risk you have to take if you opt for multi-year bonds: once your money is insured there is no way out.
Providers must write to you between 14 and 30 days before your voucher expires to describe your options.
Usually that includes renewing another bonus or getting your money back. It’s easy to overlook this card if you’re on vacation or if your life is busy with other things.
If you don’t respond before your voucher expires, some providers automatically transfer you to a new one, even if you don’t want it.
Among large providers, NS&I guaranteed growth and guaranteed income bonds work like this.
The same goes for its indexed and fixed rate certificates. If you are renewing your certificates, please note a change here.
On old certificates, you could dip into your savings during the term. For certificates renewed after July 23 of last year, you cannot: you are blocked for the entire term.
Barclays, NatWest along with building societies in Coventry, Yorkshire and Skipton also reinvest your money if they don’t hear from you.
Others – including Halifax, Lloyds, Santander and Nationwide – invest their money in their lousy easy access accounts where they earn almost nothing.
But at least you can get your money back and reinvest it somewhere else if you want.