News Column

Investors Face £1bn Precipice on Fixed Rate Bonds

Jul 18 2013 12:00AM



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%

(i) = For fixed rate investments maturing in 2012 (ii) = Based on Best Buy rates in month of investment

Individual Investor Falls

As well as the biggest drop in overall income, holders of 3 year bonds will suffer the biggest drop in individual income. The average investment in these bonds currently stands at GBP 22,333 and if this were to be reinvested in the current best-buy products on offer, investors can expect a return of GBP 3,037 - a fall of GBP 1,576 compared to their last investment in 3 year bonds.

Fall in AERs

The fall in income across all fixed rate products is a result of a drop in average best-buy AERs available. The falls vary from 0.16% for 6 month bonds to 2.47% for 5 year bonds (see Table 3). Despite longer term bonds suffering the biggest falls in AERs, these products still offer higher rates than the shorter term investment options.

Table 3: Average Difference in AERsInvestment Period Average change in Best Buy Rate6 month -0.16%1 year -1.11%18 Months -1.16%2 years -1.76%3 years -2.35%4 years -1.10%5 Years -2.47%

For those investors in the 3.1 million fixed rate products due to mature over the remainder of 2013 - particularly those 2, 3 and 5 year bonds in July and November (see graph below) - HSBC recommends that people seriously consider what the best possible home for their savings is.

Notes to EditorsTable 4: Total number of fixed rate products maturing in 2013 (February toDecember inclusive).Investment Period No. Products Total Investment6 month 70,961 GBP 2,483,107,3851 year 2,499,576 GBP 43,221,331,94718 Months 359,960 GBP 10,380,802,6272 years 982,269 GBP 23,979,087,2253 years 489,574 GBP 10,131,420,7904 years 30,998 GBP 689,832,5785 Years 851,796 GBP 1,920,987,361TOTAL 5,285,134 GBP 92,806,569,913

For more information visit:

HSBC Bank plc: HSBC serves 16.1 million customers in the UK and employs approximately 52,000 people. In the UK, HSBC offers a complete range of personal, premier and private banking services including bank accounts and mortgages. It also provides commercial banking for small to medium businesses and corporate and institutional banking services. HSBC Bank plc is a wholly owned subsidiary of HSBC Holdings plc.

The HSBC Group: HSBC Holdings plc, the parent company of the HSBC Group, is headquartered in London. The Group serves customers worldwide from around 7,500 offices in over 80 countries and territories in Europe, the Asia-Pacific region, North and Latin America, and the Middle East and Africa. With assets of US$2,556bn at 31 December 2011, HSBC is one of the world's largest banking and financial services organisations.

Suman Hughes
020 7992 2748

Source: Marketwire

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