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Saving: a three year commitment?

traditional and technology 1270519 640What will you be up to three years’ time? Will you be worrying about the general election on May 7 2020? Waiting for the start of the Olympics in Japan in the summer? I expect I’ll be doing just the same as now (i.e. very little) but with the added fun of living with a by-then teenage boy.

One thing I might be doing in the spring of 2020 is awaited for my three year bond with National Savings & Investments to mature (this is about as exciting as my life is likely to get). The new three year bond was launched yesterday, paying 2.2% a year fixed as long as you hold onto it for the whole term. And while that’s less than the current rate of inflation – which is 2.3% - it’s better than you’ll get most other places. Apparently, the average three year bond pays 1.24%. Although when rates are this low, even a top rate never seems very much, does it? After all if you put in the maximum of £3,000 (the minimum is £100) in the NS&I then you know that in three years’ time you will have a shade over £3,202. A shade over £200 in three years doesn’t seem great to me.

But in its favour, this is a risk-free saving: NS&I is not going to fail (it’s owned by the government). You know without any hesitation that in three years, you will get your money and interest back. However, it is at risk of being eaten away by inflation: if the rate rises to - as some predict -3% this year then you’ll effectively be losing money.

Yet if you have savings sitting in a bank or building society account as I do, the new NS&I bond looks attractive. I’m getting less than 1% on my savings account and cash Isa. Why wouldn’t I want to put some of it – if only £3,000 – into this? No one can really guess what’s going to happen to interest rates or inflation over the next three years, no more than they can predict if team GB will triumph in Tokyo. I think I’m going to risk it with this no-risk bond

I’ll report back on how easy/difficult it is to invest: and let us know if you have invested – and if not, why not.

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Wednesday, 24 April 2019