A Bird in the Hand: Anglo Irish Bank Outlines the Latest Factors to Consider when Investing in a Fixed Term Savings Bond

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Derek Keogh, Head of Personal Savings at Anglo Irish Bank, outlines the key factors to consider when choosing the best time to invest in a fixed term savings bond.

Once locked in, your earnings on your savings are unaffected by movements in interest rates that might be caused by unforeseen economic or political events.

In 2010 the decision whether to move or wait for a better interest rate is a common dilemma. With this in mind, Derek Keogh, Head of Personal Savings at Anglo Irish Bank, has outlined the key factors to consider when deciding at what time to take out a fixed rate savings bond.

With a wide variety of accounts and bonds to choose from, coupled with a wide range of savings needs, the decision isn't always easy. There are pros and cons to 'the waiting game' and there are also factors to consider before savers lock-in to a rate.

When to lock-in? Keogh states: "Let's say you have £10,000 sitting in a low interest rate savings account earning 1.6% which you know you won't be using for at least a year. You browse the web and see current interest rates on 1 year fixed rate bonds are running at 3.4% for a year. This may appeal, however, you've heard that due to positive economic forecasts there is widespread belief that rates are likely to go up - say to 3.8%."

"So here's the dilemma: Do you keep the funds sitting idle in the low interest savings account in the hope that 1 year bond rates will soon go up? Or do you take the plunge and start earning the 3.4% immediately and resist the urge to wait?"

"As currently stands, if you keep your money at the 1.6% rate and wait until the rates go up, and for the purpose of this example that happens in three months, you then lock in to a fixed rate at 3.8%, your interest for that 12 month period would work out at £320 approx (3 months x 1.6% interest per month and 9 months at 3.8% interest per month). If you moved immediately and locked in your savings at 3.4%, your interest earnings would be £335 approx (12 months at 3.4% interest per month)."

Keogh added that there are some things to consider before savers lock-in to a rate:

  •     When asked if there are any guarantees that rates are likely to go up, Keogh said: "Rate changes are typically only announced shortly before they're implemented so it's very unlikely a bank will categorically say that 'the rate will go up'."
  •     And if they go down? "That's the core advantage of fixed rate bonds," says Keogh. "Once locked in, your earnings on your savings are unaffected by movements in interest rates that might be caused by unforeseen economic or political events."
  •     Keogh added: "A simple rule of thumb advice is that if you have money that you won't be using for a long time, take an informed view of the market and if it is appropriate for your circumstances investing sooner rather than later can give you the advantage of instant higher rates, an earlier maturity & ultimately a more certain income stream. Choosing a fixed rate bond automatically shields you against being impacted by a fall in interest rates. It may be better to have the certainty of a small actual advantage than 'hoping' for the chance of a greater one."

The material contained in this article is for general information purposes only and does not constitute investment advice or an offer to buy or sell or a solicitation of any investment products or other financial product or service. You should not act or refrain from acting on the basis of any material contained in this article without seeking appropriate professional advice. All information is provided "as is" and without warranties express or implied and Anglo Irish Bank Corporation Limited accepts no liability whatsoever for any inaccuracies, errors, omissions, opinions or misleading information or for any action taken or not taken in reliance on the information in this message. Any expressions of opinion are current opinions as at the date of publication and are subject to change without notice.

Anglo Irish Bank Corporation Limited is authorised by the Financial Regulator of Ireland and subject to limited regulation by the Financial Services Authority in the UK. Details about the extent of our regulation by the Financial Services Authority are available from us on request.

Issued by Anglo Irish Bank Corporation Limited, 10 Old Jewry, London, EC2R 8DN

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