When we surveyed our clients three years ago, 98% believed interest rates would be higher today, yet the Bank of England base rate has remained at 0.5%. Similar opinion remains today - 89% of clients surveyed in March this year believe interest rates will be higher in three years' time. However, the market suggests savers could be disappointed once more.
Interest rate swaps are financial instruments which offer a guide to where the market thinks interest rates are heading. The swap market suggests inter-bank interest rates might fall further in the short term before an increase to around 0.75% in 3 years.
The chart shows a prediction of future interest rates calculated using the sterling interest rate swap curve.
Interest rate swaps are derivatives which allow institutional investors to 'swap' a floating interest rate for a fixed rate. They therefore provide an estimate of interest rates between now and their end date. Using two swap rates, for example the three-year and four-year swaps, it is possible to calculate the implied one-year interest rate between years three and four. The chart is based on these calculations.
For some time we have held the opinion that the UK's fragile economy will mean a prolonged period of low interest rates. Our view today is unchanged - we cannot see any meaningful increase in the base rate in the short or medium term.
More adventurous savers disappointed by the low returns on cash have turned to stock and bond markets. We have seen a growing number of people transferring Cash ISAs into the Vantage Stocks & Shares ISA in search of higher returns. This is a potential solution for those who can afford to take the risk, but it isn't for everyone.
Stock market investments can fall as well as rise, so your capital is not guaranteed, and once you have transferred to a Stocks & Shares ISA you cannot transfer back to a Cash ISA. It is also important to remember that interest in a Cash ISA is paid gross. Within a Stocks & Shares ISA, income is only paid gross on corporate and government bonds. On everything else, including cash, the income is paid net of basic rate tax but doesn't incur higher tax rates.
In the Vantage Stocks & Shares ISA you can choose from a huge range of funds and shares that could improve your returns.
In this environment it is also extremely important to ensure you are getting the maximum out of the capital you already have invested.
In Vantage you can keep costs low whilst ensuring you receive a premium service that helps you make better investment decisions. Our position as one of the largest brokers in the UK means we can help you keep costs low. We have negotiated savings of up to 5.5% when you buy funds and annual loyalty bonuses of up to 0.5% each year. You can also buy and sell shares and other listed investments from just £5.95 and never more than £11.95 per deal online. Over the last decade we have saved our clients over £1 billion in charges.
We also strive to keep you informed of the wider economic situation through the Investment Times, regular email updates and the wealth of information on our website. This should help you form your own views and help you identify investment opportunities.
If you hold investments with companies which don't provide you with any ongoing research and information, you could consider transferring them into our Vantage Service. Alternatively, if you hold poorly performing investments with other providers and you feel it's time for a change you could transfer to Vantage and choose new investments that you believe have more potential.
If you are happy to make your own investment decisions, transferring is much simpler than you might think.
Source: http://www.hl.co.uk/news/articles/rate-expectations
Interest rate swaps are financial instruments which offer a guide to where the market thinks interest rates are heading. The swap market suggests inter-bank interest rates might fall further in the short term before an increase to around 0.75% in 3 years.
Predicted market interest rates
The chart shows a prediction of future interest rates calculated using the sterling interest rate swap curve.
Interest rate swaps are derivatives which allow institutional investors to 'swap' a floating interest rate for a fixed rate. They therefore provide an estimate of interest rates between now and their end date. Using two swap rates, for example the three-year and four-year swaps, it is possible to calculate the implied one-year interest rate between years three and four. The chart is based on these calculations.
More adventurous savers disappointed by the low returns on cash have turned to stock and bond markets. We have seen a growing number of people transferring Cash ISAs into the Vantage Stocks & Shares ISA in search of higher returns. This is a potential solution for those who can afford to take the risk, but it isn't for everyone.
Stock market investments can fall as well as rise, so your capital is not guaranteed, and once you have transferred to a Stocks & Shares ISA you cannot transfer back to a Cash ISA. It is also important to remember that interest in a Cash ISA is paid gross. Within a Stocks & Shares ISA, income is only paid gross on corporate and government bonds. On everything else, including cash, the income is paid net of basic rate tax but doesn't incur higher tax rates.
In the Vantage Stocks & Shares ISA you can choose from a huge range of funds and shares that could improve your returns.
In this environment it is also extremely important to ensure you are getting the maximum out of the capital you already have invested.
In Vantage you can keep costs low whilst ensuring you receive a premium service that helps you make better investment decisions. Our position as one of the largest brokers in the UK means we can help you keep costs low. We have negotiated savings of up to 5.5% when you buy funds and annual loyalty bonuses of up to 0.5% each year. You can also buy and sell shares and other listed investments from just £5.95 and never more than £11.95 per deal online. Over the last decade we have saved our clients over £1 billion in charges.
We also strive to keep you informed of the wider economic situation through the Investment Times, regular email updates and the wealth of information on our website. This should help you form your own views and help you identify investment opportunities.
If you hold investments with companies which don't provide you with any ongoing research and information, you could consider transferring them into our Vantage Service. Alternatively, if you hold poorly performing investments with other providers and you feel it's time for a change you could transfer to Vantage and choose new investments that you believe have more potential.
If you are happy to make your own investment decisions, transferring is much simpler than you might think.
Source: http://www.hl.co.uk/news/articles/rate-expectations
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