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Savings: did I get it wrong?

Ihorror 2028165 640nterest rates are going up. This is bad news for borrowers and good news for savers. Not this saver, though. And not all borrowers either. Here’s why.
This week the Bank of England warned base will go up sooner rather than later: possibly, experts say, as early as May. Base rate is used by banks to set their mortgage and savings rates. As it’s currently at 0.5%, that’s why mortgage rates – and savings rates – are low.

If base rate goes up, around 4 million UK households with tracker or standard variable rate mortgages would see their monthly repayments go up. But around the same number would not be affected as they are on fixed rate deals and wouldn’t have to pay more.

If you’re a saver with a variable rate savings account – and savers outnumber mortgage borrowers by about seven to one – then a rate rise would be welcome. You’d think that for me a rate rise would be good. I don’t have a mortgage but I do have savings. However, less than a year ago I put £3,000 into the then-new National Savings & Investments three year fixed rate bond (I gleefully blogged about it at the time: bit silly tbh). It matures in April 2020. The interest rate is 2.2% which currently still looks like a good deal – it’s the same rate as the current best three year deal (from Atom Bank).

But if base rate does go up in May, then fixed savings rates will probably go up. Indeed, they may well start increasing right now as the market factors in the expected rise. So quite soon I could be out of the money.

There’s no cashing in the NS&I bond early so I’m just going to put up with it if rates rise against me. It’s a gamble that anyone putting their money into fixed rates needs to be happy with. Fortunately, it’s not a huge amount of money in the bond and I imagine that even if rates do go up it will hardly be by much. And I’ve been in front for the past 10 months. Still, a lesson learnt: I do actually wish I hadn’t rushed in to this deal without thinking about it.

See our guide to savings here and our guide to mortgages here

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Saturday, 20 April 2019