How have falling retail deposit interest rates affected savers’ behaviour? One place to look is the market for fixed-rate bonds, which give a guaranteed interest rate for a set period of time. These rates tend to be higher than instant access accounts, because customers must tie up their deposits to receive the higher rate. Fixed-rate bonds represented around 40% of new time deposits in January 2017.
Since January 2016 a split of fixed-rate bond balances by the length of the fix has been collected, allowing users to see the proportion of deposits in each fixation period. These proportions are represented by the bubbles in the chart.
Looking at investors’ preference for different lengths of bonds, we can see that since January 2016, there has been a notable decrease in balances on 3-year fixed-rate products. In contrast the popularity of 1-year fixed has remained unchanged, and there has been a slight rise in demand for 2-year bonds. Looking at the rates themselves, we see a decline in the average rate offered across all three types of bond, with the largest decline coming in 3 year bonds.
Quoted rates on fixed-rate bonds
Louise Johnston works in the Bank’s Data and Statistics Division.
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