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Savers warned on rate falls

Savers warned on rate falls

Category: Savings

Updated: 05/07/2010
First Published: 05/07/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
More than five million savers have been warned that they are likely to face a drop in interest rates if they reinvest their matured funds into similar accounts.

Some 5.5 million fixed rate accounts, worth over £110 billion, will mature in 2010, with the largest number, 581,044, to do so this month.

In 2010 so far, over 2.7 million fixed rate products have matured, but savers looking to transfer their funds into like-for-like accounts could be in for a shock.

Research conducted by HSBC has found that investors will have lost £722 million in income if they have simply reinvesting their funds into similar savings products.

There are large discrepancies between the length of terms and the amount interest rates have fallen. For six month and one year fixed rates, the average rate has fallen by 0.26% and 0.82% respectively.

It is over the medium term where investors will seriously feel the pinch. Eighteen month deals have fallen by an average of 3.01%, while two year accounts have declined by 2.59%.

"Many people find that fixed rate products offer them the security they need and the returns they desire for their savings goals," David Wells, head of pensions, savings and investments at HSBC said.

"However, those who want to reinvest savings from matured fixed rate products into similar deals, will find that their income drops significantly - an especially nasty shock for those who are preparing for retirement."

However, for savers willing to put in the spade work, there are still some decent savings accounts around.

Five year bonds have seen the smallest falls in average rates, declining by just 0.19%, and savers willing to lock their money in for this longer term can achieve a return of 4.75%, offered by ICICI Bank on its five year fixed rate bond.

However, if you think Bank of England interest rates might go up in the near future, then a shorter term offering may be more to your liking.

Santander, Barnsley BS and ICICI Bank all offer one year fixed rate bonds paying a return of 3% or even higher.

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