Gareth Says – “N S & I dramatically reduce rates but don’t rush into the market!”

Gareth Says – “N S & I dramatically reduce rates but don’t rush into the market!”

As many already know the Government dropped another bombshell with a reduction in interest rates on Premium Bonds and NS&I Income Bonds.

From 24 November the rates on Premium Bonds will reduce to 1% per annum, a reduction from 1.4% per annum. For Income Bonds the rate falls from 1.15% per annum to 0.01% per annum.

The latter is particularly harsh as they have taken in Billions. However, it is not surprising given that they deferred a proposed rate reduction scheduled for 1 May 2020.

Where do I invest?
There will shortly be billions of free cash looking for a home. The current market leaders will be swamped and will undoubtedly be forced to reduce rates.

There are two obvious options to the writer.

  1. If you can fix your capital for 12 months, with no access required you could opt for a 1 year or 2 year term. The average 1 year fixed is 0.66% per annum therefore anything above this is worthy of consideration.

I would advise on not putting more than £85,000 into these, due to the compensation scheme (FSCS) limit, please ensure you do not require access.

  1. If you require access, why not look to well known companies that are paying above the average rate of 0.23% per annum. We cannot arrange these for you. Expect all rates to FALL.

Will Interest Rates go negative?
Yes possibly. The Bank of England and the Prudential Regulation Authority (PRA) are starting to engage with firms about their readiness for zero or negative bank rates.

If we follow Japan, who had negative rates, they were not applied to individual accounts only Corporate and Pensions.

It is important to remember why you have money on deposit – “rainy day” fund, expenses, holidays (!), new car, house maintenance etc. Even though rates are awful and likely to get worse, if you require your capital to be secure, surely that’s why you have monies in bank accounts, do not contemplate transferring to Equity related investments where values can fall. All investments with M&T can lose money, do not let the low rates tempt you into taking large risk!