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Your Money > Savings Articles > Savings
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By Sarah Modlock
A series of dips in what your money could earn follow a bumper period for savers, with rates hitting a six-and-a-half year high in September last year. Since then, the chances are that you may not have noticed one or more drops in the rate of return for your savings because banks and building societies only need to tell you if they move rates more than 0.25% out of line with the Bank of England's base rate. So you might expect a 0.25% cut following the move by the Bank of England. But many banks have decided they could capitalise on a rate drop by lowering interest on savings accounts 0.25% before the rate drop and then by another 0.25% afterwards. This means neither cut was above the 0.25% trigger in the Code so they don't need to write to you about the 0.5% reduction in the interest you earn. These sneaky tactics mean your savings could be on the slide, especially if expectations of a further two rate reductions later this year are accurate. In the coming months it is going to pay to stay on your toes, so maintain an active interest in what your savings account is paying, either through a quick call or check on the bank's website or in-branch. You can then decide whether to move your money for higher returns. Going down One of the first to reduce interest was National Savings & Investments which cut the interest rates on some of its most popular products by up to 0.65%. This will come as a blow to the popular children's bonus bonds, many of which may have been given as Christmas gifts. The other affected products are: fixed interest savings certificates, fixed rate savings bonds, capital bonds and pensioners guaranteed income bonds. The reductions of between 0.35% and 0.65% will affect new investments only. Existing ones will continue to get the rate they signed up for. NS&I products are popular because they are overseen by the Treasury and so viewed as risk-free as well as - in most cases - being tax-free. Children's bonus bonds are five-year fixed rate products that can be bought by anyone over 16 for a child under 16 with a deposit between £25 and £3,000 in each issue. The latest issue (26th) pays 4.05%, down 0.5% on the previous issue. For more mature savers, the one-year, two-year and five-year pensioners' guaranteed income bonds are available only to those aged 60 and over, and give people the opportunity to use some of their savings to provide a guaranteed monthly income, with no risk to their capital. The latest (series 37, 43 and 51) now pay 4.35%, 4.2% and 4.15% before tax respectively - down as much as 0.65%. Peak practice You may be lucky to find some last minute or lingering accounts with attractive rates but make sure you know exactly what you are signing up for. Many banks and building societies will reserve their better rates for savers who want internet-only access, can lock money away for a specified period or give plenty of notice before any withdrawals. If you need to dip into your cash earlier than planned then you will be penalised with an interest cut. More worryingly, you may increasingly find that many so-called instant access accounts now have penalties too so be especially careful if you need an account for emergency money. Arguably better than a dazzling-but-brief rate is consistently reliable one. Financial comparison experts Moneyfacts have introduced listing for consistent performers over the last 18 and 36 months. "Kent Reliance Building Society tops the 18 month chart for mini cash ISAs which is a great achievement when you realise that the society also accepts transfers in from existing ISAs, says Moneyfacts' Andrew Hagger. "Usually the top paying mini cash ISAs are able to offer such rates on the basis that it is for new money only, so hats off to Kent Reliance. On the 36 month ISA chart, Yorkshire BS takes the top spot with its e-ISA. Interestingly the only non-mutual to feature in either of the ISA consistency rankings is Halifax with its ISA saver direct." "When it comes to notice accounts (without bonus), Anglo Irish Bank is head and shoulders above the competition with its 7 Day Notice account. For example, if you had invested £10,000 with this account for the last 36 months, you would have earned £1650.45 in interest - a full £138.11 more than its nearest competitor. The no notice accounts (without bonus) category sees the Anglo Irish Bank Easy Access Deposit account as top dog over 18 months and Beverley BS and Chesham BS just pushing West Bromwich BS into third place in the 36 month rankings." Useful links: |
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