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
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
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

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

Isis hostage crisis: The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power

Isis hostage crisis

The prisoner swap has only one purpose for the militants - recognition its Islamic State exists and that foreign nations acknowledge its power, says Robert Fisk
Missing salvage expert who found $50m of sunken treasure before disappearing, tracked down at last

The runaway buccaneers and the ship full of gold

Salvage expert Tommy Thompson found sunken treasure worth millions. Then he vanished... until now
Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Homeless Veterans appeal: ‘If you’re hard on the world you are hard on yourself’

Maverick artist Grayson Perry backs our campaign
Assisted Dying Bill: I want to be able to decide about my own death - I want to have control of my life

Assisted Dying Bill: 'I want control of my life'

This week the Assisted Dying Bill is debated in the Lords. Virginia Ironside, who has already made plans for her own self-deliverance, argues that it's time we allowed people a humane, compassionate death
Move over, kale - cabbage is the new rising star

Cabbage is king again

Sophie Morris banishes thoughts of soggy school dinners and turns over a new leaf
11 best winter skin treats

Give your moisturiser a helping hand: 11 best winter skin treats

Get an extra boost of nourishment from one of these hard-working products
Paul Scholes column: The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him

Paul Scholes column

The more Jose Mourinho attempts to influence match officials, the more they are likely to ignore him
Frank Warren column: No cigar, but pots of money: here come the Cubans

Frank Warren's Ringside

No cigar, but pots of money: here come the Cubans
Isis hostage crisis: Militant group stands strong as its numerous enemies fail to find a common plan to defeat it

Isis stands strong as its numerous enemies fail to find a common plan to defeat it

The jihadis are being squeezed militarily and economically, but there is no sign of an implosion, says Patrick Cockburn
Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action

Virtual reality: Seeing is believing

Virtual reality thrusts viewers into the frontline of global events - and puts film-goers at the heart of the action
Homeless Veterans appeal: MP says Coalition ‘not doing enough’

Homeless Veterans appeal

MP says Coalition ‘not doing enough’ to help
Larry David, Steve Coogan and other comedians share stories of depression in new documentary

Comedians share stories of depression

The director of the new documentary, Kevin Pollak, tells Jessica Barrett how he got them to talk
Has The Archers lost the plot with it's spicy storylines?

Has The Archers lost the plot?

A growing number of listeners are voicing their discontent over the rural soap's spicy storylines; so loudly that even the BBC's director-general seems worried, says Simon Kelner
English Heritage adds 14 post-war office buildings to its protected lists

14 office buildings added to protected lists

Christopher Beanland explores the underrated appeal of these palaces of pen-pushing
Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Human skull discovery in Israel proves humans lived side-by-side with Neanderthals

Scientists unearthed the cranial fragments from Manot Cave in West Galilee