UK fixed rate product investors face £242million savings precipice

Longer term fixed rate investors in the UK are facing a savings precipice this year when they come to reinvest as rates for long term products continue to languish, according to new research.

There are more than 4.7 million fixed rate products worth almost £92 billion maturing in 2011, with the largest number maturing in October (534,648), according to research from HSBC.

But it also reveals that those investors in the 2 million fixed rate products that have matured thus far in 2011 will lose £242 million in income if they simply re-invest their savings pot into similar products.
 
However, the current returns show a marked difference between long and short term products. While investors who put their money into six month and one year bonds will see an increase 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 three year products rates showing the largest fall in investment income.

The average investor in a three year fixed rate bond will see their income fall by 36% or an average £1,498 when they re-invest this year, compared to a 25% increase in returns for those who re-invest into a short term six month fixed rate product.

These varying incomes fall are attributable to the significant drop in best buy AERs available on fixed rate products, according to HSBC. While three year product rates have fallen by 2.39%, rates for six month bonds have increased by 0.55% although in terms of rate paid, six month bonds could still offer substantially lower rates than those on longer term bonds.
 
For those investors in the 2.7 million fixed rate products maturation months due to mature over the remainder of 2011, HSBC recommends that people seriously consider what the best possible home for their savings is.
 
‘Many savers opt for fixed rate products for the guaranteed income and security offered. By fixing their hard earned savings into a product for a specific amount of time they can often earn higher returns when compared to other accounts available at the same time. However, those who want to reinvest savings from matured fixed rate products into similar products may find that their income drops significantly - an especially nasty shock for those who are preparing for retirement,’ said David Wells, head of pensions, savings and investments at HSBC.

‘We urge people to seek advice and consider all their options before simply reinvesting their savings in a similar product. By diversifying their savings portfolios UK investors can ensure that their take the least possible risk of interest rates falling. At HSBC, we can offer a range of options which offer a more stable way to invest for long-term growth,’ he added.