Retirement savers switching cash from matured fixed rate bonds in to new deals could lose up to £124 million in income, warns HSBC Bank.
Interest rates for fixed rate bonds have plunged over recent years and millions stand to lose as 4.9 million fixed term bonds worth £94 billion end this year.
Simply reinvesting in to another long term bond could slash returns by nearly a third (31%), claims the bank.
Instead, savers should shop around for better short term deals, urges head of savings Bruno Genovese
Savers investing in 12 and 18 month bonds will keep pace with their previous returns by reinvesting in current best buy products, he suggests.
Six month bonds will also suffer lower returns, but 18 month fixed rates deliver a gain of up to 4%.
Rates for long-term fixed bonds have plumetted over recent months – varying from a decline of 0.8% for three year bonds to 1.88% slashed off four year bond. Interest offered on 18 month deals is up just 0.14%.
“Many savers value guaranteed income and security offered by fixed rate products and can often make higher returns on their money compared to those who aren’t prepared to lock their money away and opt for ordinary savings accounts,” said Genovese.
However, those who want to reinvest their savings from matured fixed rate products into comparable deals this year may find that their income drops significantly – a shock felt particularly for those approaching or in retirement.
“We urge people not to simply reinvest their savings in a similar product, but to seek advice and consider all their options first. By diversifying their savings portfolios, UK investors can make sure that they protect themselves as much as possible against falling interest rates.”