Saving into bonds

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One of the more interesting consequences of the current economic crisis is that savers have become investors, according to some observers.

It’s an interesting point to raise, especially considering that many savings and current accounts remain fixed to the Bank of England base rate, with many current accounts providing 0% interest.

This means even traditionally strong savings accounts are now offering only marginal returns above the Bank of England rate.

This is not simply a problem domestically, but also impacts offshore finance and savings vehicles, due to offshore savings accounts being impacted by worldwide central bank cuts to interest rates. The result is that the returns remain much reduced and the tax advantages limited.

Because inflation remains a very real threat, both to existing rates, and the dangers of it escalating in future, the serious danger is that inflation is eroding savings for many people very fast.

This is all the more of a concern because people now appear to be forced into choosing fixed term bonds if they wish to save, because of the decent returns being offered by comparison.

The result really is the case of savers turning to investment vehicles, which these bonds are.

The danger is not to sit lightly with this option, as investing is a very different strategy and requires more vigilance.

So, in the meantime, if you do put your savings into fixed term bonds, do take care that you account for future raises in inflation, and don’t get caught out with your money losing value from this risk.