LONDON, UNITED KINGDOM -- (Marketwired) -- 07/18/13 -- New analysis from HSBC reveals that fixed rate bond holders face a substantial savings precipice this year when they come to reinvest. Rates have fallen significantly - up to 2.47% on some products - and left savers with the prospect of a far lower income from their investments once their current deals have matured.
Bruno Genovese, Head of Savings at HSBC, comments:
"As an increase in interest rates continues to look further into the distance, the knock on downward pressure being applied to saving rates is affecting the incomes of investors.
"Many savers value the guaranteed income and security offered by fixed rate products. 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. Savers need to consider all available options and this may not be to simply reinvest their savings in a similar product.
"Diversifying savings portfolios to have a variety of products can ensure that investors lessen the impact of falling interest rates. At HSBC, we can offer a range of options which offer a more stable way to invest for long-term growth."
Almost 5.3 million fixed rate products worth nearly GBP 93 billion will mature in 2013, with the largest number due to mature in November (568,455). Of these products, 2.8 million have matured over the last six months, but the recent fall in rates means bondholders face a GBP 1 billion fall in income if they reinvest their savings pot into similar products (see table 1).
Table 1: Savings Precipice Overview (previous six months) Total change in return ifInvestment No. of products reinvested in same fixed Period matured Total Investment term today6 month 70,957 GBP 2,483,037,724 -GBP 2,076,0261 year 1,349,591 GBP 22,498,036,989 -GBP 203,124,42318 months 188,559 GBP 5,019,324,501 -GBP 78,128,4582 years 454,902 GBP 10,520,285,067 -GBP 297,819,2653 years 267,306 GBP 5,949,408,915 -GBP 341,848,6554 years 12,212 GBP 268,382,235 -GBP 9,810,5625 Years 419,600 GBP 845,032,596 -GBP 86,317,378TOTAL 2,763,127 GBP 47,583,508,027 -GBP 1,019,124,766
Total Income Falls
All fixed rate products have been affected by the drop in rates and now offer lower returns if savers were to reinvest their money into the best-buy products currently available (see table 2). However, the biggest falls in income will be felt by 3, 5 and 2 year bond holders with drops of 52%, 50% and 45% respectively. Last year, holders of 1 year and 18 month bonds saw a slight rise in income, however even these product holders can now expect a fall in income of 39% and 38% respectively.
The smallest fall in income will be felt by 6 month bond holders, but, at 12% this drop will still have a significant impact.
Table 2: Individual Investors Savings Precipice (previous six months) Average change in potential income Percentage change inInvestment Average Average over investment potential income over Period Investment(i) Return(ii) period investment period6 month GBP 34,994 GBP 229 -GBP 28 -12%1 year GBP 16,670 GBP 478 -GBP 184 -39%18 Months GBP 26,619 GBP 1,217 -GBP 463 -38%2 years GBP 23,126 GBP 1,789 -GBP 814 -45%3 years GBP 22,257 GBP 3,027 -GBP 1,570 -52%4 years GBP 21,977 GBP 2,958 -GBP 970 -33%5 Years GBP 2,014 GBP 497 -GBP 249 -50%