How long would you invest for?

[VintageThoughts]

I have some inheritance money that o keep putting in one year fixed bonds. For the first time since I can remember, you don't get a better rate for investing longer term. I'm being offered the same rate for one year as five - or very close to.

Would you take this as a sign that interest rates are going to fall soon? I'm tempted to put it in for five years and earn a decent amount of interest?

Me too.

I think the forecast is for BoE base rate to peak in winter then slowly go down a little?

I would put it away for five years as rates will almost certainly go down in that time. Or put half away for five years and half for a shorter term.

So if rates are almost certain to go down, which I agree with, why put half away with a shorter term when rates will fall?

Because I am not psychic about rates and also the OP wasn't sure whether she wanted to lock her money away for five years.

Thank you,

I hadn't seen about interest rates peaking in winter but I'm not sure if it would help me to wait that long. I'd be missing out on 6 months' interest so unless rates go up massively, it's possibly not worth it.

Really hard to know what to do. I'm happy to leave the money where it is for 5 years, I just don't want to make a mistake. Could do with a crystal ball!

What are you planning to do with this money? Have you thought about investing it (e.g. stocks and shares ISA) rather than keeping it as cash? With such high inflation it's especially difficult to preserve value at the moment.

I haven't got a crystal ball but a fund manager said yesterday the market is currently pricing in four more rate increases to 5,5% by the end of this year.

Could be less, but likely to rise again as inflation is coming down far more slowly than in the US.

And agree with PP, I'd be considering equities if you're investing for 5 years.

And don’t forget, if you get more than £1k a year in interest, you have to pay tax on it and do a tax return each year.
ISA’s and Premium Bonds don’t pay tax on interest, but you can only have 50k in PB and £20k a year added to ISA.

@VintageThoughts its very rare for it to be impossible to get your money back if you need it, the penalty is loss of interest.

Not sure how much you have but £20k in a high paying 5 year ISA = tax free interest. A one year bond for £20k that you can put in a 2024/25 ISA, rest in 5 year bond.

@isthewashingdryyet

I had no idea I had to do a tax return! I've been earning over £1000 in interest for years but the inland revenue just upped my tax bracket at work. I did ring up once to ask why and they said the banks contact them now and let them know how much interest I earn each year. They never mentioned me doing a tax return 😬

I've got one fixed rate bond fixed in for 5 years and I've maxed out my cash isa allowance for this year so was just going to put in another fixed rate bond at 5% for 5 years. This would give me about £350 a month interest which would top up my woefully low salary (I'm in training and studying at the moment but it will be a year or two before I can earn better money).

Noone tells you you need to do a tax return. It’s your responsibility to know the rules and notify HMRC that you need to declare the income.

HMRC typically adjusts your tax code based on your interest from savings if you're not submitting a full return.

Thanks, @grass321

They've definitely done this - I rang and checked. Does that mean I don't have to submit a tax return?

Yes, if that's the only additional income beyond employment and you're not a higher rate tax payer.

https://www.gov.uk/check-if-you-need-tax-return/y

Thank you @grass321 and @ThePuma

Definitely don't need to do one. Phew!!

@VintageThoughts
Sorry, I was not accurate in what I said about tax returns.

I am going to have to pay tax on interest for the first time this year, so have only done minimal research that says I need to inform HMRC. I do a tax return anyway, so just thought everyone needed to do one. But having read the accurate replies I am pleased the bank will tell HMRC and it will all adjust itself.

still trying to move as much into ISA and PB as I can

Also worth adding that the capital gains allowance has halved this year and the same next year so worth shielding gains in an ISA or SIPP (for investments, you have to compare the rates as cash ISAs are usually lower than normal savings accounts).

Sorry to be the accountant but with inflation at 8% and your savings rate at 5%, you're losing money in real terms in the savings account at present. If you're willing to invest for five years, stock market investments would be worth considering. Doesn't have to be shares in an individual company, there's so many funds to choose from.

Even the bog standard FTSE 100 has made 9% on year on average, for every possible decade since 1984. That includes a number of stock market crashes. You are likely to make far more than a savings account. My average returns are around 20-30% from my investments (last year aside) and some funds doubled in 2021 (and one went up 50% last year even in the falling markets).