HSBC reveals £124 million savings precipice
New analysis by HSBC reveals that longer term fixed rate investors in the UK are again facing a savings precipice this year when they come to reinvest, as rates for long term products continue to fall.
Over 4.9 million fixed rate products worth almost £94 billion will mature in 2012, with the largest number due to mature in November (519,997). The analysis reveals that those who invested in the 2.3 million fixed rate products that have matured thus far in 2012 will lose £124 million in income if they simply re-invest their savings pot into similar products.
However, most of the loss in income is down to the longer term products, with shorter term bonds generally offering increased returns. While investors who put their money into 1 year and eighteen month bonds will see a slight rise in the returns they receive by re-investing in the best buy products currently available, those who lock their money away for longer are likely to see the largest decline in returns, with 4 year products showing the largest fall in investment income. The shortest term (6 month) products will also produce a fall.
The average 4 year fixed rate bond investor will see their income fall by 31% or an average of £1,205 if they re-invest over the same period this year. However, even those who re-invest into an eighteen month fixed rate product, which will offer the highest income rise in 2012, will only benefit from a 4% increase in returns.
These varying drops in income are a result of the drop in best-buy AERs available on fixed rate products, from a fall of 0.08% for three year bonds up to a fall of 1.88% for 4 year products. While eighteen month product rates have risen by 0.14%, the actual rate paid remains substantially higher for longer term bonds.
For those investors in the 2.6 million fixed rate products due to mature over the remainder of 2012 - particularly those 4 and 5 year bonds in November - HSBC recommends that people seriously consider what the best possible home for their savings is.
Bruno Genovese, Head of Savings at HSBC, comments: "Many savers value the guaranteed income and security offered by fixed rate products and can often make higher returns on their money compared to those who aren't prepared to lock their money away and opt for ordinary savings accounts. However, those who want to reinvest their savings from matured fixed rate products into comparable deals this year may find that their income drops significantly - a shock felt particularly for those approaching or in retirement.
"We urge people not to simply reinvest their savings in a similar product, but to seek advice and consider all their options first. By diversifying their savings portfolios, UK investors can make sure that they protect themselves as much as possible against falling interest rates. At HSBC, we can offer a range of options which offer a more stable way to invest for long-term growth."