Fixed vs. Variable Rate Deposit Accounts

Re: Fixed Term Lump Sum Deposits

I suppose it's good value if someone wants to operate an account by post. Other than that, I can't understand why anyone would lock up money for a year at 4.25% when variable rate demand accounts will return something similar, especially with more ECB rises expected. Either of [broken link removed] might be a better option.

Re: Fixed Term Lump Sum Deposits

MugsGame said:

I suppose it's good value if someone wants to operate an account by post. Other than that, I can't understand why anyone would lock up money for a year at 4.25% when variable rate demand accounts will return something similar

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How about:

• The 4.25% is a fixed/guaranteed rate
• While some variable rates may be higher the rate guarantee may be in or around the same
• 4.25% is on your lump sum from the beginning while the variable rates are on incremental monthly amounts - e.g. is 4.5% on €9K with NR better than 6.6% on €750 per month for 12 months with Halifax?
• Financial institutions have not always (generally?) passed on the full ECB rate increases.

NIB are currently guaranteeing ECB+0.5% (4%) on lump sums up to €50,000. Another ECB rise is expected by March at the latest, so at that point NIB will be offerring 4.25%. NR haven't always passed on rises in full, but I'd expect them to at least increase the current 4.15% rate to 4.25%, to compete with NIB and Rabo.

There is a risk ECB rates will start to fall, so the fixed rate bond could give a better overall annual rate than any of the variable rate lump sum accounts, but for that risk you get instant access to your money, and the possibility of a higher return (if further ECB rises kick-in).

Re: Fixed Term Lump Sum Deposits

ClubMan said:

• 4.25% is on your lump sum from the beginning while the variable rates are on incremental monthly amounts - e.g. is 4.5% on €9K with NR better than 6.6% on €750 per month for 12 months with Halifax?

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Am I correct in working out (using the calculators on this page) that on an annual gross basis:

• €9,000 lump sum @ 4.15% = €9,373.50 with [broken link removed] (see this calculator)
• €750 p.m. x 12 months (€9,000 in total) @ 6.65% = €9320.99 with [broken link removed] (see this calculator) - alternatively enter €12 initial lodgement and €749 p.m. (€9,000 in total) into [broken link removed] to get €9,324.55

Probably, but I wasn't suggesting Halifax or any of the regular lodgement accounts as an alternative to the fixed rate bond. (If you are comparing them, I wouldn't ignore what happens in Year II to the accumulated balance. Though Halifax claim to be losing money on their current rates, so it's unlikely to continue indefinitely.).

Sorry - I wasn't aiming my comments at you specifically. Just teasing out the nuances of the returns from each and thinking out loud.

I think now is the time to go for variable rates, when they start pushing the fixed rate, it is nearly always a sure sign that they expect the interest rates to keep climbing. Naturally, you can NEVER be sure of what will happen in the future, but it's a good bet to go with increasing rates for now.
NIB are offering a very good rate of 4% at the moment, and it has the huge bonus that you can withdraw from it at any time. However with the ECB tracker one, you can't put any money into it past the end of February. While with their account entitled regular savings, you can withdraw and lodge away for the year.

That said, people who took fixed rates on SSIAs did very well!