At the moment saving interest rates are much higher than they need to be due to decisions by the banks.

They could easily decide next year that they no longer need the same level of funding through savings, as they may have to focus more on other regulatory requirements from the FSA / BoE on their assets and capital, and the rates could drop.

Again it comes down to the sure bet versus the balanced option, and I think that you have stated a reasonable approach given those assumptions.

Sparky.

Thanks for the reply,

That looks like some sound advice - I am fully planning on fixing my money in a bond now but the question is how long to fix it for, there is an 8 month bond at the Chelsea Building Society that has a rate slightly lower than their full year bond but I am considering depositing in this rather than the full year one in the hope that interest rates will have at least reached 4.1% perhaps even more by May 2010 when it matures, therefore meaning that I at least break even and potentially get a better return than I would have done had I invested in the full year bond.

The truth is no one knows. All they and we can do is guess.

As the BoE base rate is 0.5%, which is different to the 3% you are being offered, how will we know what the banks will do when the rates increase. There are very few people with an idea, and these are going to be strategists within the banks product teams deciding what they need to do to attract or retain customers, and with influence on the desire to capture more capital through savings, this may or may not increase the savings rates.

If you have money to save now, I'd reccomend finding the best deal you can, and bet on this (as a certainty) rather than waiting to see if it will improve, and lose any over the top interest that could be receiving in the meantime.

You should also make sure you are making the most of your ISA capacity as this does not deduct tax from your savings unlike other accounts, so you need to take this into consideration when comparing.

HTH

Sparky

Hi all,

I'm in the process of putting some money into a fixed-term deposit account and just wanted to get the consensus on the likely movement of saving interest rates offered by commercial banks? Are they likely to remain pretty constant (around the high 3% mark currently) or is it likely that by the start of the next tax year they will have breached the 4% level? Obviously if they are likely to remain the same or even go down (although with my limited knowledge of the market I think the latter is unlikely as everyone seems to agree that things are picking up) given the statement that the base rate is unlikely to rise before 2011, then fixing for a year would be the best option, but if they're likely to rise in the coming months then a sorter term fixed bond might be more attractive.

Thanks in advance for replies.

C.R.E.A.M (Cash Rules Everything Around Me)