Fixed rate savings - timing is everything

£50,000 invested for 5 years at the interest rate low point (Feb/Mar 09) could see you £7,000 (net of 20% tax) worse off than if you'd invested your money just eight months earlier or £4700 worse off than if you'd deferred your decision until today.

Moneynet.co.uk research reveals just how much of a comparatively poor return you will be getting if you locked into a 3 or 5 year fixed rate savings bond at the end of February 2009.

Andrew Hagger of Moneynet.co.uk comments: With base rate at a record low, many experts were warning at the time(Feb/Mar 09) , that putting money away for longer than 12 to 24 months looked like a step too far with rates seemingly at rock bottom.

The rates on offer today are still some way off the record highs seen in the summer of 2008 but they have rebounded quite strongly when compared with those on offer just six months ago.

Whilst it would be nice to have access to a crystal ball to see what savings rates are on the horizon, unfortunately as we don't have that luxury, then it's more about taking a balanced view.

Unfortunately it will never be an exact science, but generally It's more a case of short term investing when rates are very low and longer term when we are closer to historical highs (6 - 7%).

Anyone who put their savings nest egg in fixed rate bonds in June 2008 for 3 years plus has every right to feel smug, however at the other end of the scale, if you locked your money away at the end of February this year, you are probably kicking yourself.
The fluctuation in interest rates has been dramatic over the course of the last 14 months, for example in the 3 year fixed rate bond market best buy rates have swung from highs of 7.22% Gross (June 08) down to 3.90% (Feb 09) then back up to 5.05% today.

It's a similar story for those putting their cash away for five years with rates plunging from highs of 6.40% Gross (June 08) down to 3.40% (Feb 09) before recovering to 5.45% today.

Whether you are looking for growth or a monthly income, getting the timing wrong can prove a costly move. On a three year fixed rate for example you can secure a monthly income of £168.33 (net of 20% tax) on a £50k fixed rate bond with Aldermore, compared with just £130 per month if you'd plumped for best buy on offer from The Bank of Cyprus UK just 6 months earlier.

It's extremely rare to find fixed rate savings bonds with a term of over 5 years, however back in the second quarter of2008, Birmingham Midshires were offering 6% fixed for 10 years, a fantastic looking deal in hindsight.

An approach where you don't put all your savings eggs in one basket may be a strategy worth considering; perhaps spreading your cash between fixed terms of 1 and 3 years to hedge your bets and to take advantage of rate increases that may be available in 12 months time.

With providers still battling ferociously for best buy status, it is likely that fixed rates will continue to edge higher, especially as wholesale money markets may prove too expensive an option for some Building Societies who saw their investment ratings cut by Moody's in April this year.

Also institutions are still hungry for cash to strengthen their balance sheets and to be in a position to play an active part in the mortgage market when the upturn eventually starts to show through.