Building societies shift to short-term fix

SAVERS looking for a safe haven for their cash are being tempted by a range of building society funds where the interest paid is fixed over a period of time.

Unlike nine months ago, however, when the most popular savings schemes tended to be five-year, fixed-rate products, they are now often for two years.

Among the top rates available at present is one from Coventry Building Society, whose two-year bond pays an annual income of 8.4 per cent gross on savings above £40,000. Those who want monthly income receive 8.05 per cent gross.

Martin Ritchley, chief executive at Coventry Building Society, said of the switch in popularity: "The money markets are predicting further interest rate rises over the next couple of years, reflecting a perception of where inflation is likely to go.

"A year ago, base rates were lower. Savers wanted an immediate improvement and were prepared to tie their money up for a longer period to achieve it.

"Now, they are more likely to say that five years is too long and uncertain a period of time for them to want to tie their money up. We have to reflect what the customer wants."

Woolwich Building Society has also entered the market with its own two- year bond. It pays a slightly lower annual income of 8.25 per cent gross, or 7.95 per cent monthly. But unlike the Coventry's, the Woolwich bond pays the same rate on a minimum investment of £500.

Jeff Mendzil, marketing development manager at the Woolwich, said: "The rates available in the money markets are not substantially higher over two years than for a longer period.

"This reflects uncertainty over the long-term prospects for the economy, including the forthcoming general election.

"It also reflects a slightly different point in the economic cycle. A year ago, the expectation was for rising interest rates and it was possible to offer a higher savings rate.

"But we are further along that period now and the feeling is that rates will not go up that much more and may even fall some years from now."

Ian Darby, a director at John Charcol, the mortgage and savings specialist, agrees. He says: "There is also the perception among savers that the penalties for withdrawing money from the five-year schemes are high.

"For mortgages, a similar position applies. Most of the business at present is on remortgages. We are advising people to go for two-year fixes and discounts. This is because it is possible at the moment to go for a two- year fix that is as low as 5.75 per cent.

"By comparison, a five-year fixed mortgage is about 9 per cent. Peace of mind means that borrowers are being asked to pay 3.25 per cent extra a year for several years."

Among the fixed mortgages on offer this week is Bristol & West's two- year deal at 5.75 per cent, which has a three month redemption penalty in year one and one month thereafter. B&W also offers a 3.35 per cent discount on its 8.44 per cent variable rate for two years.

Northern Rock is offering a 6.24 per cent discount on its 8.54 per cent variable rate mortgage until May 1996.

Mr Darby said: "If rates remain more or less where they are now, a discount is probably more advisable. If they rise by a significant amount, a fix is preferable."

News
The surrealist comedian at the Q Awards in 2010
people
News
Russell Brand arriving for the book launch in East London
peopleRussell Brand cancels his book launch debate due to concerns about the make-up of the panel
Sport
Christiano Ronaldo enjoys his opening goal
champions leagueLiverpool 0 Real Madrid 3: Ronaldo and Benzema run Reds ragged to avenge thrashing from their last visit to Anfield
Arts and Entertainment
Awesome foursome: Sam Smith shows off his awards
music22-year-old confirms he is 2014’s breakout British music success
PROMOTED VIDEO
Life and Style
Six of the 76 Goats' cheese samples contained a significant amount of sheep's cheese
food + drink
Arts and Entertainment
Contestants during this summer's Celebrity Big Brother grand finale
tvBroadcaster attempts to change its image following sale to American media group
Extras
indybest
Arts and Entertainment
Sir Nicholas Serota has been a feature in the Power 100 top ten since its 2002 launch
art
Arts and Entertainment
Sarah Dales attempts to sell British Breeze in the luxury scent task
tvReview: 'Apprentice' candidate on the verge of tears as they were ejected from the boardroom
News
Call me Superman: one of many unusual names chosen by Chinese students
newsChinese state TV offers advice for citizens picking a Western moniker
News
ebooksAn unforgettable anthology of contemporary reportage
News
Wilko Johnson is currently on his farewell tour
people
Voices
New look: Zellweger at Elle's Women in Hollywood awards on Monday
voicesRenée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity, says Amanda Hess
News
Let’s pretend: KidZania in Tokyo
educationKidZania lets children try their hands at being a firefighter, doctor or factory worker for the day
Life and Style
CHARGE BOOSTER: Aeroplane mode doesn't sound very exciting, but it can be a (phone) hacker's friend. Turning on the option while charging your mobile will increase the speed at which your phone battery charges
techNew book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone
Arts and Entertainment
Julianne Moore and Ellen Page are starring together in civil rights drama Freeheld
film
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Systems Business Analyst - Watford - £28k + bonus + benefits

£24000 - £28000 per annum + bonus & benefits: Ashdown Group: IT Business Syste...

Trainee Recruitment Consultant - Birmingham - Real Staffing

£18000 - £23000 per annum + Commission: SThree: The SThree group is a world le...

Trainee Recruitment Consultant Birmingham

£18000 - £23000 per annum + Comission: SThree: The SThree group is a world lea...

Trainee Recruitment Consultants

£20000 - £25000 per annum + OTE £Competitive: SThree: SThree Group and have be...

Day In a Page

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?

A crime that reveals London's dark heart

How could three tourists have been battered within an inch of their lives by a burglar in a plush London hotel?
Meet 'Porridge' and 'Vampire': Chinese state TV is offering advice for citizens picking a Western moniker

Lost in translation: Western monikers

Chinese state TV is offering advice for citizens picking a Western moniker. Simon Usborne, who met a 'Porridge' and a 'Vampire' while in China, can see the problem
Handy hacks that make life easier: New book reveals how to rid your inbox of spam, protect your passwords and amplify your iPhone

Handy hacks that make life easier

New book reveals how to rid your email inbox of spam, protect your passwords and amplify your iPhone with a loo-roll
KidZania lets children try their hands at being a firefighter, doctor or factory worker for the day

KidZania: It's a small world

The new 'educational entertainment experience' in London's Shepherd's Bush will allow children to try out the jobs that are usually undertaken by adults, including firefighter, doctor or factory worker
Renée Zellweger's real crime has been to age in an industry that prizes women's youth over humanity

'Renée Zellweger's real crime was to age'

The actress's altered appearance raised eyebrows at Elle's Women in Hollywood awards on Monday
From Cinderella to The Jungle Book, Disney plans live-action remakes of animated classics

Disney plans live-action remakes of animated classics

From Cinderella to The Jungle Book, Patrick Grafton-Green wonders if they can ever recapture the old magic
Thousands of teenagers to visit battlefields of the First World War in new Government scheme

Pupils to visit First World War battlefields

A new Government scheme aims to bring the the horrors of the conflict to life over the next five years
The 10 best smartphone accessories

Make the most of your mobile: 10 best smartphone accessories

Try these add-ons for everything from secret charging to making sure you never lose your keys again
Mario Balotelli substituted at half-time against Real Madrid: Was this shirt swapping the real reason?

Liverpool v Real Madrid

Mario Balotelli substituted at half-time. Was shirt swapping the real reason?
West Indies tour of India: Hurricane set to sweep Windies into the shadows

Hurricane set to sweep Windies into the shadows

Decision to pull out of India tour leaves the WICB fighting for its existence with an off-field storm building
Indiana serial killer? Man arrested for murdering teenage prostitute confesses to six other murders - and police fear there could be many more

A new American serial killer?

Police fear man arrested for murder of teen prostitute could be responsible for killing spree dating back 20 years
Sweetie, the fake 10-year-old girl designed to catch online predators, claims her first scalp

Sting to trap paedophiles may not carry weight in UK courts

Computer image of ‘Sweetie’ represented entrapment, experts say
Fukushima nuclear crisis: Evacuees still stuck in cramped emergency housing three years on - and may never return home

Return to Fukushima – a land they will never call home again

Evacuees still stuck in cramped emergency housing three years on from nuclear disaster
Wildlife Photographer of the Year: Intimate image of resting lions claims top prize

Wildlife Photographer of the Year

Intimate image of resting lions claims top prize
Online petitions: Sign here to change the world

Want to change the world? Just sign here

The proliferation of online petitions allows us to register our protests at the touch of a button. But do they change anything?