Fixed rate bonds 40 per cent less lucrative, experts say

Savers with maturing fixed rate bonds this season are in for a shock, as many will face new fixes that are as much as 40 per cent less lucrative, experts recently said.

October saw about 535,000 fixed rate savings products maturing, and savers coming of five, four, three, and two-year deals being greeted with a yawning chasm before them.  The highest maturing interest rate, a 7 per cent three year fix from ICICI, has dropped precipitously to 4.21 per cent, offered by the Post Office, which represents an income drop of 40 per cent.

In cash terms, a saver who made a £50,000 deposit in the three year fix in October of 2008 saw £10,920 in full term gains.  However, the new three year best buy would only net them £6,315 in returns, which is a £4,605 drop.

The rates on fixed rate bonds have plummeted over the past five years since the credit crunch and resultant economic downturn in 2008.  Older Brits commonly employ fixed rate deals, as they rely on any accrued interest to to either maintain their savings or pay their bills, yet these savers are in for what could be a ‘grim shock,’ according to Save Our Savers spokesman, Simon Rose.

Even if a saver is willing to say goodbye to their cash for a longer-term fix, Mr Rose said that the effects of inflation will negate most – if not all – of any of their gains.  The consumer prices index has risen to 5.2 percent, but inflation can be felt even more keenly by older people, according to figures recently released by Age UK Enterprises.

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