Savings |
|
Your Money > Savings Articles > Is there any...
|
By Sarah Modlock
The Bank of England left
base rate unchanged at 0.5% for the seventh month in a row and now we are told
that an extra 100,000 people every month are gaining from a drop in their
mortgage bills as interest rates stay down. Borrowers of loans for
house purchases in July were spending an average of 12.7% of their income on
mortgage interest payments, compared with 18.1% for loans secured a year
earlier says the Council of Mortgage Lenders. But what about savers? As things
seem to be going from bad to worse on rates of return, is there any point in
saving at all at the moment? The answer is yes, but you need to put some effort
into it. The long and short of
it To give you a feel for what
your money makes at various interest rates, here are some basic
sums... If you save £100 each month
in an account which pays 3% gross, you will have £1,216.64 in one year, before
tax. This is made up from your saved cash of £1,200.00, with interest earned of
£16.64. Save the same amount at the same rate for two years and your money will
earn £70.28. Over five years you will earn £464.67 in pre-tax interest. Compare
this to saving the same amount each month in an account paying just 1% and you
would have £1,205.52 after a year - just £5.52 in interest before
tax. Going
down If the interest you earn on
your savings right now seems to be disappearing then you're not alone. In fact,
the latest analysis by uSwitch.com shows that 27 savings products across the
market have had their rates cut by as much as 3% in the last month alone, in a
move to safeguard profit margins. These include the
following: ·
Lloyds TSB has cut its
Monthly Saver account rate by 3% and its 1 year fixed rate ISA rate by 1%
·
Egg's Internet Savings
Account bonus rate has dropped by 0.75% ·
Bank of Scotland's Instant
Access Savings Account Reward reduced by up to 0.35% ·
RBS and NatWest cash ISA
range rates cut by up to 0.25% ·
Selected rates across
Nationwide's fixed rate bond range have been slashed by up to
0.50% Lloyds TSB, Egg, Bank of
Scotland and the Norwich and Peterborough Building society are the ‘not-so'
fantastic four, when it comes to reducing interest rates. Amongst this group,
average cuts of 0.89% AER have been introduced on no-notice savings products in
the last month. Lloyds TSB's cut of 3% on its Monthly Saver account means it now
pays interest at a measly rate of just 2%. It is also bad news for the grey
market with Norwich and Peterborough's 50 Plus Savings account now paying a
meager 1.25% following a rate reduction of 0.15%. In the fixed rate bond
market, around 10 providers have been guilty of introducing new issue bonds at
significantly less competitive rates than their withdrawn predecessors. On
average, this group of providers' newly launched bond rates are up to 0.55%
lower than the products they replace. Nationwide is amongst the worst offenders,
with rates on its fixed rate bond range slashed by up to
0.50%. "Savers need to keep a
close eye on providers who use the ‘withdrawal and replace' tactic to sneakily
introduce products with less competitive rates," advises Rumina Hassam at
uSwitch.com. "In particular, rates on shorter term one and two-year new issue
bonds are becoming less and less competitive as providers seek to encourage
savers to tie in their cash for longer. Savers also need to be aware that market
leading rates across savings products are rarely around for long, with some only
lasting a matter of weeks. Savers need to be agile in applying for the stellar
rate products as soon as they appear - in this case good things don't come to
those who wait." How depressing. Another baddie on the
interest cutting scene is HBOS (Halifax-Bank of Scotland), part of the Lloyds
Group, which as taxpayers, we own. It recently wrote to customers with a 'High
Interest' current account to advise them they will soon earn absolutely no
interest on credit balances. These accounts will be switched over on 6 December
this year to become normal current accounts which pay 1% and pretty soon,
nothing at all on balances in credit. This is in sharp contrast to the 6.26%
pre-tax interest paid in the Higher Interest account on balances up to 2,500.
Not-so-nice
ISAs From 6 October this year,
all over-50s have been able to pay more into their individual savings accounts
(ISAs). They can now save up to 5,100, compared to the old ceiling of £3,600,
which should be a great incentive. The only problem is that
many ISA providers have cut their rates in advance of new limits taking effect.
Figures from uSwitch show that four providers (Lloyds TSB, RBS, NatWest and
Norwich and Peterborough Building society, all implemented rate cuts across
their ranges by an average of 0.25%. Lloyds TSB has imposed the most significant
rate cuts, amounting to 1% on its 1 year Fixed Rate ISA (£9,000 - £15,000
investment tier). Similarly, RBS has introduced a 0.25% rate cut across many of
the tiers within its Instant Access Cash ISA range, whilst NatWest has followed
suit with the introduction of rate cuts of up to 0.25%, rendering the returns on
some of these accounts as low as as 0.5%. Falling rates, combined
with the recession mean it's hardly surprising that more and more of us are
dipping into ISAs. In fact a cool £11billion has been withdrawn from these
tax-free products in the last year. Research from Abbey Savings discovered
savers withdrew almost three times as much compared against the previous year.
Almost two fifths of those questioned cited general living expenses as the main
reason for their withdrawals. Only a fifth wanted the cash for luxury purchases.
It doesn't pay to be
loyal You may have been with your
bank or building society for years but you can pretty much guarantee that they
won't reward your loyalty when it comes to savings accounts. In fact they are
more likely to keep their best rates aside to attract new customers. It may seem that savings accounts are
all as bad as each other right now but it's important to review your accounts on
a regular basis, and be prepared to switch regularly to get the best rate. Here
are X tips and the current best buys for savers: 1. Save
regularly - even if you can only
afford a small amount each month. It all helps, so don't lose
heart. 2. Make
sure you have the right type of savings account - depending on whether you
need instant access to your cash or can afford to lock it away for a few years.
There is no point earning high interest on
a 3-year fixed account if you pay a penalty for taking money out sooner.
3. Read
the small print - even if it is tedious.
'Hidden' restrictions and penalties could make a huge difference to what looks
like a brilliant offer. Even phrases like 'easy access' may
mean you still get charged for any withdrawals you make without giving notice.
Another common trick is to set a maximum number of withdrawals that you can make
per year before getting an interest rate
penalty. 4.
Beware of bonuses - they may seem very
attractive but if they are variable, they could pay out very little and leave
you on a tiny interest rate. Introductory bonuses are increasingly popular. Make
sure you note when they are due to end so that you can be prepared to switch
accounts if you want to. 5. Make
the most of your tax-free allowance - by saving up to £3,600 a
year (£5,100 for over-50s) in an ISA, where interest is paid
tax-free. 6. Don't
stash it under the mattress - however low your
interest rate dips. Most home insurance only covers a maximum of £500 cash.
7.
Protect your savings - if you have more than
£50,000 you should spread the amount in different banks or building societies as
only the first £50,000 (£100,000 in joint accounts)
held with a single institution is fully protected under the terms of the
Financial Services Compensation Scheme. Pick of the
bunch Citibank is now
offering the top easy access rate on its Flexible Saver account (Issue 6) and
has increased its rate to 3.30% AER including a 2.25% bonus. You can open an
account with just £1 and it's instant access. Sainsbury's
Finance Online Saver pays 3.20% AER including a 2.70% bonus for 12 months. You
need £1,000 to open an account and there is no notice but there are penalties
for more than three withdrawals per year. For cash ISAs,
ING Direct pays 2.50% (which includes a 1.47% bonus for 12
months). Yorkshire
Building Society's five year Fixed Rate Bond pays 5.30% or 4.65% for three
years. Meanwhile Barnesley Building Society offers two-year fixed rates at 4%
and one year fixed deals at 3.10%. Prices correct
as at 10 October.
Useful links: | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| ||||||||||||||||||||||||