Fixed-rate bondholders face a substantial savings precipice this year when they come to reinvest. Rates have fallen significantly - up to 2.47 per cent on some products, according to analysis from HSBC - leaving savers with the prospect of a far lower income from their investment once their current deals have matured.
Three-year fixed-rate bondholders, whose investments mature this year, face the biggest fall in returns.
Meanwhile, savers looking to the perceived safety of cash to preserve their wealth are in for a rude awakening, as Consumer Prices Index inflation has risen to 2.9 per cent in the year to June 2013 from 2.7 per cent in May. The best three-year fixed-rate bond from ICICI Bank only pays 2.55 per cent AER.
Alan Higgins, UK chief investment officer at Coutts, says: "For risk-averse investors, products such as customised deposits and structured investments offer more attractive returns than those available on deposits."
Customised deposits pay an interest rate linked to the performance of an underlying asset such as equities, currencies or commodities. They typically have terms of up to five years and provide capital protection if held to maturity - although they are subject to the risk that the deposit taker might be unable to repay at the end of the term.
Structured investments are generally pre-packaged investments that rise or fall with the performance of various asset classes or markets, and which can have full, partial or no capital protection.
Average difference in AERs
| Investment period | Average change in Best Buy Rate |
|---|---|
| 6 months | -0.16% |
| 1 year | -1.11% |
| 18 months | -1.16% |
| 2 years | -1.76% |
| 3 years | -2.35% |
| 4 years | -1.10% |
| 5 years | -2.47% |
Source: HSBC, 17 July 2013
