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There is a saying that goes, 'you can't compare apples with oranges'.

What this metaphor means, is that we can only make a comparison between two objects that have some characteristics in common. We cannot compare a dog with a skyscraper, or a pizza with a shoe.

I'm not digressing, but actually trying to explain a concept. If you think that a 2% interest rate is too low, then try looking at it from a different perspective, taking into consideration the conditions of the products you are comparing it with. Let's find out why!

Today's fixed rate products

As you will find out here, FixedRate is a 1-year binding product in Oval's Opportunities section that offers a 2% guaranteed return on your money.

Low-risk investments in guaranteed return products was easier in our parents' and grandparents' times. They could choose among Government Bonds, various annuities (even if those are longer-term), deposit accounts, and, earlier on in time, current accounts. Oh yes - not only they didn't have to pay a penny to keep their monies in the bank, they were actually paid for doing it!

This was possible because interest rates back then were very different from today. As you can read in this article, since 2008 in particular we have seen a completely new market - one where even the most cautious investors looking for a return have to take levels of risks that were once inconceivable.  

If we carried on as nothing had changed, without taking into consideration the current market conditions, we would just be clinging on to golden times that have, alas, long gone. In behavioural finance this is called status quo bias, and it means you are not taking changes into account, and clutching to the past.

What should you compare FixedRate with?

To think about it sensibly, you should also look at all the options with similar characteristics on the market. Or even better, you could compare the potential return between leaving your savings in a current account and investing them for one year. Of course, the risk linked to the investment is higher - 1 out of 7 on the risk ladder - and the invested sum is bound for one year.

It would also be just as wrong to compare a product for cautious investors like FixedRate (you can read more about its low risk level) with more speculative tools, simply because they don't have common characteristics. In fact, the potential return is higher with higher levels of risk, but the financial tool changes.

As you can read here, not only you don't gain anything from leaving your money in your current account, but in the long-term the value of your savings will also be eroded by inflation.

Now, it's up to you to decide!

Your capital is at risk and past performances may not be a reliable indicator of future results. Oval Money does not provide financial advice. If you need further information we suggest you look for expert advice.

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