Experts say that locking yourself into a long term index-linked fixed rate bond could end up backfiring on you, as the cost of living looks poised to begin to recede.
Savers desperate to find some respite from ultra low interest rates and eye watering high inflation have been jumping on long-term fixes as way to halt the erosion of inflation on their deposits. The demand for these fixed rate bonds, with terms sometimes as long as six years, has only grown as personal and business bank account providers have begun the practice of linking the interest rate of the savings product to the nation’s rate of inflation.
However, experts have warned that with new data indicating the rising cost of living may have reached its peak, taking up one of these accounts may end up being hurtful in the long run if the inflation rate drops below its current high. The lion’s share of savers will not be able to access their cash once locking it away in their long term fixes; those who do face stiff penalties for withdrawal prior to the end of the term of the savings product.
It takes bravery to link your cash to the inflation rate for the next five or six years, according to one expert, economic consultancy ITEM club’s Andrew Goodwin, especially with so much economic uncertainty on the horizon. Candidmoney’s Justin Modray also remarked that future inflation is more important that the current rate when it comes to buying inflation-linked savings products, and buying bonds in reliance on the state of the Retail Prices Index to remain high has the potential to be quite misleading.