Fixed deals lift the clouds over savers
Sunday 06 August 2006
Many savers have suffered at the hands of the interest- rate cutters over the past few months - even though the Bank of England base rate has just gone up by 0.25 per cent after 11 months on hold.
But for some savers, the deals are getting better. These are the ones happy to tie up their money for between one and five years - during which time they can make no withdrawals - in fixed-rate savings accounts and bonds.
Fixes are not linked to the base rate but to swap rates - the cost to lenders of borrowing from one another based on the market's expectations for interest movements over a set period. This means they can go up even when the base rate is frozen.
And that's just what is happening at the moment as providers jostle for top spot in the fixed-rate league to woo customers.
Earlier this month, the Halifax increased the return on its four-year bond to 5.47 per cent and its five- year one to 5.52 per cent, while the Anglo Irish Bank put its four-year rate up to 5.45 per cent and its five-year one to 5.5 per cent.
Not wanting to be outdone, the Heritable Bank then hiked its four-year bond up to 5.5 per cent and its five-year bond to 5.55 per cent.
"Heritable has upped the ante once again," says Sue Hannums at independent financial adviser AWD Chase de Vere. "But the main player is now Skipton building society, which launches a three-year deal at 5.5 per cent tomorrow. This is a good term and a good rate."
Rachel Thrussell from financial analyst Moneyfacts says: "We thought rates had peaked a few weeks ago, but they have still been creeping up. We are seeing a few providers trying to leapfrog one another - particularly on four- and five-year deals - while others are choosing not to get involved at all."
Rates, she adds, are well up on the beginning of the year, when "you were lucky to get 5 per cent."
Ms Hannums says the main advantage of fixed rates is that they give you the peace of mind of knowing exactly how much interest you'll earn each year.
"If you are a bit nervous about going into a bond, you could consider a one-year product, such as that offered by Anglo Irish Bank at a rate of 5.45 per cent."
Ms Thrussell adds that fixes might suit someone who has been given a lump sum. "They are a good place to save money you don't want to spend," she explains. "But you need to think carefully before tying yourself into a fixed rate as you can lose a lot of interest if you need to gain access to your money."
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