Protecting Savings (trading soybean futures) Income when Interest Rates are Falling

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Sunday, 11 January 2009

By Anjitha Sakthidharan

Every serious saver expects a reasonable amount of income from their savings. But the ongoing financial crisis has forced banks to slash interest rates which will naturally reflect on the savings income adversely. Hence savers have a cause for serious concern about their falling income and are looking for ways to protect their income from savings. Given below are some tips that will help you to take care of your savings income even if the interest rates fall to 2% or below.

Fixed rate bonds from banks and building societies with a current base rate of 4.5% are usually immune to rate cuts. Hence these types of saving investments are quite capable of protecting the savings income. It is possible to earn up to 5.75% to 6% before tax on bonds fixed for two years. They are expected to remain strong even if the base rates of other savings fall to 2% or below in the early months of the New Year as some experts predict. Even though such predictions may be exaggerated most experts think the base rates are likely to fall substantially down to 2.75% and remain so for a while by the middle of 2009.

Analysts base their predictions on a similar trend in 1951 when the official rate was slashed to as low as 2.5% which is a record. When base rate was at 3.5% during 2003 savers were earning just 2.76% on Halifaxs two-year fixed-rate bonds where as other savings could fetch only about 1.24%.

However banks are expected to continue offering good rates on savings because there is a strong incentive for them to draw customers to their branches with sizeable savings deposits. Hence Libor rate are likely to remain above the base rate at somewhere near 4%. Libor rate is the interest rate at which bankers lend to one another. Banks and building societies are therefore likely to present fixed-rate bonds at around the Libor rate of 4% to enable them to attract more savings deposits from customers.

For those who are aged 50 or above one of the best options is to go for a one year fixed Saga bond at 5.48% with Halifax or Bank of Scotland. However a drawback of this scheme is that the interest rates are more likely fall during its one year duration than any semblance of an upward trend in the current scenario. Hence it is advisable to choose a two year scheme because even if the interest are low in the first year there is all probability that situation will improve in the second year onwards with corresponding increase in the interest rates.

For those who are looking for a two year fixed bond saving scheme the best option appears to be the deal offered by Nationwide between 4.6% and 4.72% depending on the size of amount deposited. The Cheshire Building Society is paying 4.6% on a minimum GBP1000. Bradford & Bingley where the deposit taker is Abbey pays a higher 4.8%. Moreover Cheshire and Nationwide offer a three year deal also at 4.6%.

Anjitha is a financial adviser and well known for his finance related articles . You can find more financial articles written by the author by visiting the following link .
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