2011 May Be a Difficult Year For Getting a Good Fixed Rate Bond

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by: bluespeckmedia
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Date: Tue, 12 Apr 2011 Time: 11:10 AM
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Lack of Interest
As recently as 2008, returns as high as 7% were being offered to investors on fixed rate bonds, but with interest rates at record lows, these deals have all but disappeared. The recovery out of recession is taking a while and accordingly investors and savers on the lookout for good fixed rate bond offers face a future of uncertainty. Even bonds with longer terms (5 years plus) are seen as a risky investment, and the expectation is that within 3-4 years the rates offered will have improved. The problem with longer term deals at this stage is that you are tying up capital at low rates when your rate of return on investment becomes relatively poor as interest rates rise. The economic recovery is currently slow and volatile, but as there's a strong chance that rates will pick up within the next 5 years, nobody wants their tied-up cash earning pitiful interest rates based on what's on offer today.
Focussing on Gains in the Short Term
Deals are still available in the short term though, and fixed rate bonds still provide relatively competitive rates in comparison to Instant Access accounts. No doubt the next year represents a gamble as far as investment is concerned, and Instant Access accounts are attractive as they should stand to benefit from the anticipated improvement in interest rates. That said, government economic policymakers have been taking a 'fingers crossed' approach towards potential economic gains, and such improvements have remained largely on the wish list.
Unexpected Turns
The credit crunch and ensuing recession has not been unique to the UK, but has had its presence felt across the globe, from the US to Asia and now to North Africa and the Middle East. So markets across the globe need to see improvement in our increasingly globalised economy. Of course no-one could have effectively planned for the recent disaster in Japan, the world's third largest economy, and this will no doubt impact world markets and economies, hampering the worldwide recovery from recession. It goes without saying of course this hampers Japan's recovery the most. The effects on the financial markets is not yet clear though. Add to this the numerous uprisings in North Africa and the wider Arab world, and the concept of "stability" in the world's economy becomes a rather distant notion.
Looking Forward
As the financial year draws to a close, the effects of the events in recent months will greatly impact the rate of recovery throughout the next financial year. As such, the reassurance brought by a fixed rate of interest may make a fixed rate bond an attractive offer in relation to more risky investments. In any case, in the short term at least, interest rates do not look likely to rise in any significant way, so finding a good 1 or 2 year fixed rate bond may bring the best of both worlds and at least ensures some growth in your assets.

About the Author

John T Hughes is an expert financial writer with experience in the investment and retirement markets. John is resident writer at Independent Financial Advisor.co.uk, a site specialising in finding you expert advice on retirement products such as annuities.