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Today's best savings rates
By Rebecca Atkinson
Interest rates currently stand at just 0.5%, after the Bank of England shaved a total of 4.5% off the base rate in less than six months.
While a lot of media attention has focused on what the cut may or may not mean for mortgage borrowers, savers may feel somewhat in the dark about how it will impact them.Unfortunately, the news is gloomy. Savings rates have been falling back for a while now, and at the same time inflation remains above target.
In January, the Consumer Prices Index (CPI) - the official measure of inflation - stood at 3%. While this is a fair bit lower than the CPI's peak of 5.2% in September, it is still 100 basis points above the government-imposed 2% inflation target. According to Bank of England figures, the average instant access account paid 0.51% in January, while fixed-rate bonds averaged at around 2.35%. With inflation eroding the value of your money, savers are not only seeing their returns shrink - they are rapidly vanishing altogether.
But there are still some decent rates out there. If your money is stuck in a low-paying account, now really is the time to find it a new home.
Fixed-rate
With interest rates set to fall even further over the next year, experts are recommending that savers consider opting for a fixed-rate bond where you can be sure exactly what your rate will be for six months to a year, or even longer.
The downside of fixed-rate accounts is that they aren't designed for people who like to dip in and out of their savings. Having said that, if you do need to make an emergency withdrawal or even move all your money, you are (in the main) able to quickly. Just remember that you will probably lose at least a month's worth of interest as a result.
Abbey and Alliance & Leicester have stormed into the best-buy tables with a two-year fixed-rate bond paying 4.01% AER. Unfortunately, the deal is only available to people with balances of at least £30,000. And, as withdrawals are subject to a penalty, savers must only consider this account if they are happy to lock their money away for two years.
The bond, which pays interest on a monthly or annually, can only be opened via an Abbey or Alliance & Leicester branch, and will only be available while funds last.
If you have less to save, or want to fix for a shorter period of time, then ICICI Bank is paying up to 4.1% AER on its HiSAVE two-year fixed account or 3.9% AER on its HiSAVE 12-month deal. Both bonds require a deposit of £1,000. These accounts do not allow early access withdrawals. ICICI Bank is fully regulated by the Financial Services Authority - so you can be sure you'll get up to 100% of your savings (up to £50,000) back should it go under.
Chelsea Building Society recently launched a new version of its Winter fixed-rate account. This short-term deal requires a £1,000 upfront deposit, and pays 3.78% AER until 2 October 2009. You can opt for annual or monthly interest, and access is possible via branch or by post.Withdrawals are permitted but you will be hit with a penalty equivalent to 180 days' loss of interest on the amount withdrawn.
Chelsea also offers a selection of fixed-rate accounts paying 3% AER. You can fix for 12 months, two years or three years. Again, you'll need £1,000 to deposit upfront to qualify, and withdrawals come with a 180 days' loss of interest penalty charge. Derbyshire Building Society pays 3.75% until 28 February 2010. You have to have £5,000 to open this account, and no withdrawals are permitted. Cheshire Building Society also pays 3.75% AER on its one-year fixed rate, again requiring a £5,000 upfront deposit.
Bank of Cyprus UK offers a three-year fixed account paying 3.9% AER on deposits from £1 or a two-year bond paying 3.8% AER. Withdrawals are not permitted within the term of the account.The UK arm of the Bank of Cyprus is a member of the UK's Financial Services Compensation Scheme and the equivalent deposit protection scheme in Cyprus. Between the two schemes, British savers are protected up to £50,000. Technically, this means that if the Bank of Cyprus was to fail, you would have to claim 90% of your money back from the Central Bank of Cyprus Deposit Protection Scheme, up to a maximum of £20,000. You would then have to reclaim your remaining balance, up to £50,000, from the FSCS.
Finally, Investec Private Bank's High 5 savings account is aimed at people not only looking for a top rate, but also a consistent one. Currently paying 3.41% AER (correct 6 March 2008) this rate changes on a weekly basis to reflect other savings accounts in the market as the High 5 deal promises to always be the average of the top five best-buy savings accounts. This account, while offering savers the ability to get a top rate without having to constantly shop around, won't be for everyone. For a start, you must have at least £25,000 to deposit in order to open this account. And although withdrawals are permitted, you must give three months' notice before you can access your money.
Instant access
If locking away your money isn't for you, then a no-notice deal might be more suitable for you. ING Direct pays 3% AER, including a fixed 12-month bonus of 1.47%, on its variable rate savings account. You can open this deal from as little as £1, and there are no penalties or restrictions when it comes to accessing your money. This deal is only for new customers - bear in mind, that interest is paid monthly so you won't benefit from compounded interest. Stroud & Swindon Building Society, meanwhile, pays up to 2.4% AER on its Bonus Guarantee account, which can be opened with a deposit of £500. This rate is variable, but guarantees to be at least 1% above the Bank of England base rate until 31 December 2009.
Elsewhere, Alliance & Leicester offers an Online Saver deal that pays 3% AER variable icluding a bonus paid on 5 April 2010. This account has no withdrawal penalties.
Regular savings
The credit crunch has not only highlighted the importance of saving, it has also created a financial climate where saving products offer better value than in recent years. Barclays offers a regular savings account paying 6% AER on monthly deposits between £20 and £250. This interest rate is fixed so you can be confident it won't fall if base rate does. However, interest is paid monthly so your net interest rate is actually 5.84%. And if you make a withdrawal from this account then your AER will fall to 3.03% (2.99% net) for that month. After 12 months this account will switch to an instant access account, so you'll probably want to review at this time. You can only save up to £3,000.
Children's savings accounts
If you have decided to invest your Child Trust Fund (CTF) voucher into a cash savings account, then the Hanley Economic Building Society currently offers an account paying 5.5% AER which allows you to make additions from £1.If you have already invested your voucher but want to open up a savings account for your child, then Halifax's one-year Regular Saver account pays 8% AER on deposits from £10.
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