Fixed Rate Bonds In Our Current Economic Climate

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by: bluespeckmedia
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Word Count: 500
Date: Thu, 27 Oct 2011 Time: 6:39 AM
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Since March 2009, The Bank of England base rate has stayed at its lowest of 0.5%. Prior to 2009, fixed rate bonds would have provided a guaranteed higher interest rate and many investors would have seen their fixed bonds paying out a good amount of interest despite falling rates. Now, over 30 months later, there is a constant debate as to whether base rates will begin to rise again.

At present there are two sides to the fixed rate bond argument which need to be taken into consideration. Firstly, the popularity of fixed bonds exists because they usually offer a sense of stability and security if there is a risk that rates could fall. At present, investors purchasing bonds are saving their money at a fixed low rate at the bottom of the market which cannot really drop any further. The risk here is that if base rates start to rise then money would be better off being invested into an ISA or a current savings account whose interest rates could rise accordingly.

The other side of the argument is that various bank's set rate bonds are still offering a much higher return on interest rates compared to traditional savings accounts. For instance, interest rates on high-street savings accounts sit somewhere between 0.75% and 3.25%. Fixed term bonds being offered by providers are instead offering between 2.75% and 4.25%. The only snag of course is that the interest rate on bonds whose rates are fixed improves with the larger amount of money you are able to deposit, and for longer the term. As a guide, one leading fixed rate bond on the market offers a rate of 4.25% providing you have £10,000 to deposit for 5 years. So, if you have a big amount accumulating in savings which you do not need access to then it still makes sense to opt for a fixed rate bond.

Whilst the highest yielding fixed rate bonds are those with a longer term contract, for those worried about investment in the current economic climate it may be most sensible to opt for a shorter term fixed rate bond. If interest rates do start to climb again then you will not be locked into a long term deal and you will be free to move your cash to a more profitable bond and rate. There are currently bonds available on the market with terms from a minimum of 6 months.

Remember, if base rates rise in the next few years then saving rates will soon follow. You can follow the the UK base rate directly through the Bank of England and the next decision will take place on October 6 2011. It may be beneficial to talk directly to a fixed rate bond provider to find the latest deals and best fixed term bonds on the market. They may also be able to advise which fixed rate bonds would be best on consideration of your financial circumstances.

About the Author

Searching for the best fixed bond rates can be a headache. A bond comparison website is one way to search for the best fixed rate bonds and may help you to secure a competitive interest rate for your savings.