Fixed Rate Bonds In Our Current Economic Climate

Since March 2009, the Bank of England’s key rate has been at its lowest level of 0.5%. Before 2009, fixed-rate bonds would have guaranteed higher interest rates and many investors would have seen their fixed-rate bonds pay a hefty amount of interest despite falling interest rates. Now, more than 30 months later, there is an ongoing debate about whether key interest rates will rise again.

Currently, there are two sides to the fixed income bond argument that should be considered. First, there is the popularity of fixed bonds because they often provide a sense of stability and security if interest rates threaten to fall. Currently, investors who buy bonds are saving their money at a low fixed interest rate at the bottom of the market that really can’t go any lower. The risk here is that if the base rate starts to rise, you’d be better off investing the money in an ISA or checking a savings account whose interest rates can rise accordingly.

The flip side of the argument is that fixed-rate bonds from various banks still offer much higher yields compared to traditional savings accounts. For example, the interest rates on high street savings accounts range from 0.75% to 3.25%. The fixed-term bonds offered by providers instead offer between 2.75% and 4.25%. The only downside, of course, is that fixed rate bond yields get better with more money you can deposit and longer. As a guideline, a market leading fixed rate bonus will offer a rate of 4.25% as long as you have £10,000 to deposit over a 5 year period. So if you have a lot of savings that you don’t need to tap, it is still wise to opt for a fixed-income bond.

While the highest yielding fixed income bonds are longer-dated bonds, those who are concerned about investing in the current economic environment may want to opt for a shorter-dated bond. If interest rates start rising again, you are not tied to a long-term deal and can move your money to a more profitable bond and rate. There are currently bonds on the market with a minimum term of 6 months.

Keep in mind that if the base interest rate rises in the coming years, the savings rate will quickly follow. You can monitor the UK base rate directly through the Bank of England with the next decision due on 6th October 2011. It can be helpful to speak directly with a fixed income bond provider to find the latest offers and best bonds. the market. They can also advise you which fixed-income bonds are best suited to your financial situation.