Fixed Rate Bond Savers Face Savings Precipice

Savers who opted for fixed rate bonds set to mature this year face a ‘savings precipice’ as savings rates remain low, HSBC has warned.

Research by HSBC shows there are more than 4.7 million fixed rate savings products worth almost £92billion maturing in 2011, with a large number of these maturing in October this year.

For the two million savers whose fixed term products have already matured in 2011, simply reinvesting the money in an equivalent savings product would see an income loss worth £242million.

David Wells, head of pensions, savings and investments at HSBC said: “Many savers opt for fixed rate products for the guaranteed income and security offered. By fixing their hard earned savings into a product for a specific amount of time they can often earn higher returns when compared to other accounts available at the same time.”

Wells said people looking to reinvest in a new fixed rate bond could be in for a nasty shock as this could mean their income drops significantly.

Lower savings rates

The ultra low Bank of England Bank Rate which has remained unchanged at 0.50 per cent since March 2009, has lead to a decrease in the rates offered by savings accounts.

As the Bank Rate affects the money banks and building societies can generate in the financial system, it has depressed the rates offered on fixed rate bonds.

Research on the rates available when fixed rate bonds, maturing this year, were issued shows the best buy options for six month or one year bonds offer better rates, but longer term fixed rates available now are lower.

For example, on a three year bond that matures this year if a saver takes out a new three year bond their savings income could fall by 36 per cent.

The HSBC research said three year product rates had fallen by 2.39 per cent. Even though 6 month bonds are up by 0.55 per cent compared to those available 6 months ago, they are still lower than the longer term options.

Diversifying your portfolio

With the fall in fixed rate bond rates, HSBC is urging savers to look carefully at the best possible home for their savings.

“By diversifying their savings portfolios UK investors can ensure that they take the least possible risk of interest rates falling,” Wells said.

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