Fixing the interest rate on your bond is something to consider for those who really need to be able to budget or for the risk averse. It is generally not a good idea to fix your bond rate even if one considers that the bond rate is bottoming out and we are likely to enter an increase cycle.

The reason is that in order to fix your bond you will need to pay around 4% above the current bond rate which could be fixed for a maximum of 10 years but more likely 3 to 5 years. It is very unlikely that the bond rate will increase by that amount in a short period of time.

The bond rate has only been above 14% for a little over 12 months in the last 10 years(see rates below)

When we think about, the banks are in the business to make money and any product they offer is intended to either make them money immediately or to retain you as a client. By fixing your bond rate the banks are achieving both of these goals, they are making a hefty 4% (granted it’s a calculated risk in times of uncertainty) on you for the peace of mind of being able to budget.

User the bond calculator to see what the effect on your interest payment will be over a 5 or 10 year period, also do the calculation of how much you could reduce your period over if ypou paid the additional amount into your bond over that period. It is quite incredible what it costs in the long term. If this does not sway you away from fixing your bond, then go ahead and see what period and at what rate your bank will fix your bond at.

The extra money you pay into your bond being the difference between your present rate and the premium for fixing is very likely to save you a whole lot of cash unless there is a total meltdown and interest rates rise at unprecedented intervals, so think very carefully before you take this leap.