Monday, Oct 26, 2009

I'm not expert at "forward yield curves" but ...

BBC: NS&I raises rates for new savers

... NS&I monthly income bonds (i.e. instant access) are currently paying 2%, but for one year fixed you can get 3.95% and for two years fixed you can get 4.25%.
Any thoughts? Hang on with monthly income until rates go up even further? Even if they went up to 6% in six months time, you'd still be better off by fixing for a year, methinks.

Posted by mark wadsworth @ 02:21 PM (1887 views)
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1. chrisa said...

'The international banking crisis has meant that banks, building societies and the government have been forced to compete vigorously to attract savings from the public.'

Really? By making saving rates insignificant? Bizarre form of vigorous competition.

Monday, October 26, 2009 02:29PM Report Comment

2. mountain goat said...

I have been thinking of opening an account with NS&I. Certainly safer than money in a bank.

Monday, October 26, 2009 02:44PM Report Comment

3. martin said...

This isn't like Gordon to offer leading rate, will this cause more competative rates down the line? Or is this the pre-cursor to interest rate hikes?

Monday, October 26, 2009 03:41PM Report Comment

4. nomad said...

These are good rates in a dormant market - I would imagine they will stimulate competition . . . and is also a pre-cursor to an upward shift in interest rates.

Talking of accounts I can recommend Tesco online instant access @ 3% (includes a one year bonus). Convoluted to open up but operates well and transfers to other banks happen in minutes.

Monday, October 26, 2009 03:46PM Report Comment

5. jack c said...

I have been watching very closely for several months the fixed interest rate offerings from the major Banks/BS's and NSI and feel that the best strategy for savers is to lock into a rate for no more than 12-18 months, as variable rates will (IMHO) begin to rise - it's just a question of when. I suspect once the next general election is out of the way rates may be forced up as the true state of the nations finances unfold.

Monday, October 26, 2009 03:56PM Report Comment

6. fallingbuzzard said...

All fine if there is no need to withdraw and you want >£50k in one place. AA (HBOS) had similar at 5.15% before they pulled it. If there is any likelihood at all of needing access then you lose against flat 3.3% instant access for the first 20 months and don't benefit from any possible rate upside. If I had cash I wouldn't lock up now because I think instant access will add 2% by end of next year.

Monday, October 26, 2009 04:12PM Report Comment

7. mark wadsworth said...

Well thanks for your inout, but FallingB nails it - if instant access pays 2% now and this goes up to 4% at end of next year, you are better off locking in to 4% right now fixed for 12 months.

My thinking is, if we knew that instant access rates are going to rise steadily to 6% over the next 12 months, I would be indifferent, anything less than 6% in 12 months' time and fixed 4% is the one to go for; anything more than that, I am better off staying with instant access.

Plus, locking up savings for a year or two will delay the fateful day when Her With The Nesting Instinct finally grinds me down.

Monday, October 26, 2009 04:26PM Report Comment

8. little professor said...

I'd go for the index linked savings. RPI is set to take off within the next 6 months

Monday, October 26, 2009 05:24PM Report Comment

9. inbreda said...

@7 MW said "... if we knew that instant access rates are going to rise steadily to 6% over the next 12 months..."

I think we should look to learn lessons from zimbabwe. I personally wouldn't lock in for a period of greater than 10 minutes in a uk bank. index linked or gold. Otherwise, might as well burn it (buy a house)

Monday, October 26, 2009 05:31PM Report Comment

10. str 2007 said...

Do you need to be areful which index they're linked to IE RPI or CPI ?

I can never remember which contains house prices

Monday, October 26, 2009 05:36PM Report Comment

11. jack c said...

str 2007 - NS&I 3 yr and 5 yr IL savings certs are RPI linked. Hope this helps.

Monday, October 26, 2009 05:47PM Report Comment

12. drewster said...

I have to agree with inbreda. I don't trust government bonds to maintain their purchasing power, index-linked or otherwise.

If you'd invested £100,000 in 1988 with CPI-linked returns, you'd have £170,000 twenty years later. With RPI-linked returns you'd have £203,000 twenty years later. With RPI+1% as offered by NS&I, you'd have £245,000.

By contrast if you'd bought a house in 1988 for £100,000, twenty years later you would have approximately £317,000 (depending on exactly when and where you bought and sold - both 1988 and 2008 were very volatile years for house prices, and not all locations changed by the same amount. I've used the national average for June 2008 in my calculations.)

Furthermore you would also have rental yields, which even at a stingy 2.5% of property value per year (saved as cash in a 2.5% savings account) would give you an extra pot of £60,000. If your yield was 5% and your savings also earned 5%, your cash pot would be £165,000.

The more I look into this, the more I think screw it, I'm going to become a landlord....

Monday, October 26, 2009 07:42PM Report Comment

13. mark wadsworth said...

Drewster, sure, most of the time you're far better off being a landlord. But now isn't the time, so I have to park my money for a couple of years before I go back into buy-to-let. As least that will give me an alibi when I campaign for LVT.

Monday, October 26, 2009 08:15PM Report Comment

14. letthemfall said...

The past is not necessarily a guide to the future, as they say in small print.

Monday, October 26, 2009 08:17PM Report Comment

15. str 2007 said...

Cheers Jack

Thanks for all that work drewster. Of course your savings rates include an early stint with savings getting 10% or so for a period - not much chance of that now.
Not much chance of houses trippling in the next 20 years either - I hope.

What a beautiful life those early landlords must be having now.

Monday, October 26, 2009 08:37PM Report Comment

16. drewster said...

I agree Mark, now doesn't seem like the time.

My figures show that index-linked savings are a poor long-term investment; but in the short term they might be more suitable, particularly when asset prices (share prices and house prices) are so high by historic standards, and yields are so poor. However if we face a gilt-buyers strike then the BoE will be forced to hike rates Iceland or Argentina-style; and fixed-rate savings will look terrible. If we manage to avoid that fate then fixed rates will probably do quite nicely.

I still don't get the impact of quantitative easing; my fear is that instead of a visible gilt-buyers strike, we might just have a slow, disguised decline in the value of the currency.

Monday, October 26, 2009 08:44PM Report Comment

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