The Lemon Fool

Bond Rates

I'm considering a 2yr bond for an investment amount of £150k.

Using First Saving as an example the rate for monthly interest is 5.98% over 2yrs.

Generally I think it's anticipated that the BoE will raise interest rates again. Will bond rates improve if they do? I appreciate this may be a "how long is a piece of string question". I'm just trying to get a broad feel for future interest payments on the amount I've quoted above, before I lock into a 2 yr bond.

Thank you for any replies in advance you Fools

AiY(D)

AsleepInYorkshire wrote:Generally I think it's anticipated that the BoE will raise interest rates again. Will bond rates improve if they do?

Rates of return on "bonds" in the sense of banking products would increase with interest rates. If you have a variable rate "bond", your rate woild increase as it would fall if the BoE cut interest rates. If you held a fixed rate bond, your interest rate wouldn't change. However if you or anyone else put in some new money, they would get the new higher rate.

So there are two decision points
Fixed term v instant access (or restricted versions of instant access)
Fixed Rate v variable rate.

Instant Access fixed rate doen't really exist for perhaps obvious reasons.

Or invest half now in the fixed, half in a (lower yield, but not nothing) instant access, and wait to see. Then if rates do rise again, you can transfer the IA monies into fixed. Admittedly, that won’t work if you want all the money back in 2 years. But it does mean you can (by picking another bank/company) remain under the £85k guarantee. Or plump for half in your proposed two-year fix and put half in a one-year. AJB are offering 5.35% on 1 year at the mo. Then you see what the water’s like when the one-year matures.

I see from your link that 5% AER is available with a 90-day notice account, another possible hedge?

Are there tax considerations on the interest ?

You could always consider Gilts. Should be one or two that suit.

https://www.yieldgimp.com/gilt-yields

GrahamPlatt wrote:Or invest half now in the fixed, half in a (lower yield, but not nothing) instant access, and wait to see. Then if rates do rise again, you can transfer the IA monies into fixed. Admittedly, that won’t work if you want all the money back in 2 years. But it does mean you can (by picking another bank/company) remain under the £85k guarantee. Or plump for half in your proposed two-year fix and put half in a one-year. AJB are offering 5.35% on 1 year at the mo. Then you see what the water’s like when the one-year matures.

AJB are offering 5.35% on 1 year at the mo.

Now offering 6%.

https://www.ajbell.co.uk/cash-savings#list



Steve

stevensfo wrote:
AJB are offering 5.35% on 1 year at the mo.

Now offering 6%.

https://www.ajbell.co.uk/cash-savings#list

Too high?

For those that take the view that IRs/CPI may be (fairly) near the peak, and recession/deflation may follow, OakNorth, for example, offer very nearly 6% up to 3 years, and over 5.5% fixed for four years.

https://oaknorth.co.uk/personal-savings/fixed-term/