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The Masked Tulip

Bonds Or Instant Access?

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Hi,

I've posted this here as few people seem to visit the Savings forum these days but, for HPC bears, do you consider the fixed interest rates of bonds to be a plus or a negative in the credit crunch?

With BOE IRs falling the fixed IRs of bonds seems to make sense BUT... for all you HPC bears out there do the risks of being tied into a bank outweight the benefits of those rates? If things get as bad as many on here think then is it foolish now to fix your savings for 6 or 12 months... or more? Or does it make sense to fix in a time when IRs appear to be falling throughout the year?

Do the extra IRs of fixed bonds make that much difference anyhow and does the often little additional interest they offer make up for not being able to access your savings instantly? Or are you hedging your bets and doing 50 50 on bonds and instant access?

Or are you so bearish that you prefer instant access allowing you to bail out of any bank that might fail? Do you trust the Government FSA scheme or are more than a few of us on here simply too paranoid about total economic collapse?

Is it impossible that a UK bank will fail - we are told that NR did not fail but simply had a problem with getting loans? Or is another UK bank failure only a matter of time?

TMT.

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The chances of another Northern Rock is significant, probably less than 50:50, but it's certainly there. However, the chances of a UK bank "failing" and not being able to repay the depositers, is so small as to be virtually nil. The reason is that a depositer is only owed paper money, so if the treasury really had its back to the wall it would bend its principles and print the money required, judging this to be a smaller evil than that of a wholesale collapse in confidence.

My money is spread across a number of areas, I'm not trying to make money, just to hang on to the wealth I already have. About 12-15% is in precious metals, which I consider as an insurance policy, similar to fire and flood insurance on a property, it's extremely unlikely it'll ever be needed, but if it is needed then it's really needed. I keep 15-20% in equities, because this is a stake in the engine room of the economy. I'd like that stake to be higher, but at the moment the remainder is shared between cash and commodities. I went with this "safety first" portfolio in February 2007, but ironically it's delivered one of my best ever investing years.

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I only intend to keep enough bank account cash for approx 12 months of living costs (or 24 if I dumped the car and moved into a cheaper rental). This is well within the FSA guarantee. The rest is in commodities and stocks, which have returned nearly 20% since the beginning of the year, so that seems to be working out.

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Both, plus some swissies and euros (although moving slowly out of euros into swissies)

Keep around 30k per institution for the fixed rate bonds.

We need access to some money in case my work disappears for any reason (including ill health, akthough I am OK in that dept AFAIK)

If rates go down, the fx and fixed rates will help that.

Also NS&I for a sizable portion, Index Linked certs should help cushion the inflationary blow.

Oh and a little bit of the shiny stuff.

Nothing here is meant to constitute advice, btw. :)

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We have quite a bit with NS&I, but with the new government guarantee, we've just opened up a Northern Crock account and plan to move a big wodge into that for an extra 1% or so.

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Stick it into the Crock.

They are now effectively NS&I. The treasury guarantee is in place and they will give 3 months notice before removing the guarantee.

It is a no brainer. Crock are now safer than any other bank, including the big clearing banks.

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I might be very stupid, especially as IRs are supposed to fall again this year, but I do not like the idea of putting my money into a fixed term bond.

Yes, I opened a Northern Crock one a month ago but that was because they allow instant access. Other than that I could, perhaps, go for a 6 month one but only B&B and West Brom seem to offer those. Tying my money up for a year or longer in the present climate just seems risky to me even though I know either this month or next the BOE will most likely reduce IRs by another 0.25%.

Am I just being silly?

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I only intend to keep enough bank account cash for approx 12 months of living costs (or 24 if I dumped the car and moved into a cheaper rental). This is well within the FSA guarantee. The rest is in commodities and stocks, which have returned nearly 20% since the beginning of the year, so that seems to be working out.

I don't feel I can post this often enough - so every time the FSA supposed guarantee is mentioned.

From my post http://www.housepricecrash.co.uk/forum/ind...st&p=989599

The money is guaranteed only as a levy on the rest of the banking industry. The scheme has never been tested against a big failure. But to give an idea, it plans to levy around £100m over the year 2008/09.

THat means the scheme can refund up to £100m. Please note that is b, not an m.

If you want to check go to the FSCS website and look at their latest plan and budget

http://www.fscs.org.uk/industry/publications/annual_reports/

If A&L or any other bank goes under, then the FSCS scheme is totally and utterly irrelevant. Your £35k can only be covered by the government whistling the money out of thin air. Like they did with guaranteeing Northern Rock. But note that they haven't had to give back to retail NR depositors, so actually it is untested whether the government could actually do it.

So I wouldn't set too much faith in the scheme. But if makes the sheeple feel happy then fine, it is doing its job.

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National Savings tax free index-linked are the best savings vehicle around, if you are prepared to tie money up for 3 years (although you can withdraw early).

If you want to keep your money in cash and protect the capital, you are better off leaving it in a current account than taking a punt on another currency, shares or bond funds.

Know how much you want to be sure of 100%, how much you can risk a little and how much you can risk a lot. If you are looking short-term and will need the money, do not risk any principal. Boring, but basic stuff.

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National Savings tax free index-linked are the best savings vehicle around, if you are prepared to tie money up for 3 years (although you can withdraw early).

If you want to keep your money in cash and protect the capital, you are better off leaving it in a current account than taking a punt on another currency, shares or bond funds.

Know how much you want to be sure of 100%, how much you can risk a little and how much you can risk a lot. If you are looking short-term and will need the money, do not risk any principal. Boring, but basic stuff.

What do you mean by 'bond funds'? Is this different to the fixed term bonds that the various building societies offer to Joe Public?

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A mix of NS&I accounts:

ISAs

Inflation Index Linked

Premium Bonds

Maybe not the most exciting or profitable but all tax-free and I'm a cautious type.

Edited by Starcrossed

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What do you mean by 'bond funds'? Is this different to the fixed term bonds that the various building societies offer to Joe Public?

Yes, these will be a fund that owns lots of corporate and government debt. It allows the small investor to access the main bond market and spread risks around.

Govt and company debt is tradable and not fixed like the building soc. "bonds", but you may gain or lose money depending on movements in interest rates.

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The savings bonds offered by the building societies and banks to the general public aren't bonds but fixed rate savings accounts - if you go to the Halifax they will let you close your account early if you wish, but with a loss of interest - interest rate is pretty poor now though

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  • 296 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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