The Bank of England chose to hold interest rates at 0.50 per cent for the 26th consecutive month, prompting several leading economists to revise their predictions of a rate rise to much later this year than previously expected. But where does this leave savers looking for income?
Until now, many savers have been seeking instant access savings accounts as a means of protecting themselves against any potential interest rate rises. But as forecasts change, would you be better off with a fixed rate bond?
There are pros and cons to each type of savings account. For example, instant access savings accounts are more flexible, and mean that if interest rates suddenly go through the roof you are in a stronger position than if you were in a fixed rate bond.
However, the chance that interest rates will suddenly go through the roof are slim – economists at the Ernst & Young ITEM Club told Moneymail that they expect interest rates to rise at a rate of 0.25 per cent every three months from the end of 2011.
One drawback of instant access savings accounts is the fact that the rate is often variable, and many of them come with the hook of a juicy bonus rate, meaning that you need to be on the ball and ready to switch at the end of each 12 month period.
On the other hand, lock into a fixed rate bond for too long and you could end up losing out if interest rates rise swiftly (although at a rate of 0.25% every three months it would take interest rates two years to rise to 2.25%).
The happy medium seems to be short and medium term fixed rate bonds with terms of between 1 and 3 years, which will allow you to make the most of some of the more competitive interest rates available at the moment.
See the table below to compare some of the fixed rate bonds currently available on the market.