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."

Start your day with The Independent, sign up for daily news emails
ebooksA special investigation by Andy McSmith
Louis van Gaal
An easy-peel potato; Dave Hax has come up with an ingenious method in food preparation
voicesDave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Arts and Entertainment
Jay Z has placed a bet on streaming being the future for music and videos
Arts and Entertainment
Festival-goers soak up the atmosphere at Glastonbury
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE £45,000: SThree: SThree Group have been well e...

Ashdown Group: IT Manager / Development Manager - NW London - £58k + 15% bonus

£50000 - £667000 per annum + excellent benefits : Ashdown Group: IT Manager / ...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£13000 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Ashdown Group: Training Programme Manager - City, London

£40000 - £45000 per annum + benefits : Ashdown Group: Training Programme Manag...

Day In a Page

NHS struggling to monitor the safety and efficacy of its services outsourced to private providers

Who's monitoring the outsourced NHS services?

A report finds that private firms are not being properly assessed for their quality of care
Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

Zac Goldsmith: 'I'll trigger a by-election over Heathrow'

The Tory MP said he did not want to stand again unless his party's manifesto ruled out a third runway. But he's doing so. Watch this space
How do Greek voters feel about Syriza's backtracking on its anti-austerity pledge?

How do Greeks feel about Syriza?

Five voters from different backgrounds tell us what they expect from Syriza's charismatic leader Alexis Tsipras
From Iraq to Libya and Syria: The wars that come back to haunt us

The wars that come back to haunt us

David Cameron should not escape blame for his role in conflicts that are still raging, argues Patrick Cockburn
Sam Baker and Lauren Laverne: Too busy to surf? Head to The Pool

Too busy to surf? Head to The Pool

A new website is trying to declutter the internet to help busy women. Holly Williams meets the founders
Heston Blumenthal to cook up a spice odyssey for British astronaut manning the International Space Station

UK's Major Tum to blast off on a spice odyssey

Nothing but the best for British astronaut as chef Heston Blumenthal cooks up his rations
John Harrison's 'longitude' clock sets new record - 300 years on

‘Longitude’ clock sets new record - 300 years on

Greenwich horologists celebrate as it keeps to within a second of real time over a 100-day test
Fears in the US of being outgunned in the vital propaganda wars by Russia, China - and even Isis - have prompted a rethink on overseas broadcasters

Let the propaganda wars begin - again

'Accurate, objective, comprehensive': that was Voice of America's creed, but now its masters want it to promote US policy, reports Rupert Cornwell
Why Japan's incredible long-distance runners will never win the London Marathon

Japan's incredible long-distance runners

Every year, Japanese long-distance runners post some of the world's fastest times – yet, come next weekend, not a single elite competitor from the country will be at the London Marathon
Why does Tom Drury remain the greatest writer you've never heard of?

Tom Drury: The quiet American

His debut was considered one of the finest novels of the past 50 years, and he is every bit the equal of his contemporaries, Jonathan Franzen, Dave Eggers and David Foster Wallace
You should judge a person by how they peel a potato

You should judge a person by how they peel a potato

Dave Hax's domestic tips are reminiscent of George Orwell's tea routine. The world might need revolution, but we like to sweat the small stuff, says DJ Taylor
Beige is back: The drab car colours of the 1970s are proving popular again

Beige to the future

Flares and flounce are back on catwalks but a revival in ’70s car paintjobs was a stack-heeled step too far – until now
Bill Granger recipes: Our chef's dishes highlight the delicate essence of fresh cheeses

Bill Granger cooks with fresh cheeses

More delicate on the palate, milder, fresh cheeses can also be kinder to the waistline
Aston Villa vs Liverpool: 'This FA Cup run has been wonderful,' says veteran Shay Given

Shay Given: 'This FA Cup run has been wonderful'

The Villa keeper has been overlooked for a long time and has unhappy memories of the national stadium – but he is savouring his chance to play at Wembley
Timeless drama of Championship race in league of its own - Michael Calvin

Michael Calvin's Last Word

Timeless drama of Championship race in league of its own