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Your Money > Savings Articles > Read the small...
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By Sarah Modlock
As purse strings across the country tighten, those not paying off debts will be keen to save more and seek out higher returns. But what is on offer for savers right now and how much time do you need to spend reading the small print? Our building societies report record deposits for the month of February, with £1.35 billion being stuffed into accounts. This is the highest February 'inflow' since 1997. Meanwhile the Individual Savings Account (ISA) market had a tough time. It's thought that the financial crunch time has scared investors and plunged ISAs sales to a new low of £1.3bn during the 2007/8 tax year, compared to £2.5bn the year previously, according to figures from the Investment Management Association. Despite this, the interest rates for savers are looking rosy as banks encourage them to save rather than spend so that they, in turn, can lend more cheaply. To attract more savers, rates for many savings accounts are higher than they have been for around seven years with plenty offering interest of 7%. However this is expected to come to an end when the banks receive Bank of England funding designed to ease the mortgage market strain. Believe it or not, one in ten of us prefer to stash our cash under the mattress, according to Newcastle Building Society. A third said they thought building societies were the safest option though. If you're shopping around, don't rush into the shiniest offers before you read the small print as some have strings attached in the form of long notice periods, heavy interest penalties for withdrawals or the requirement to move your current account (Alliance & Leicester) or invest as much as you save (Abbey). If you can tuck your money away for a while... Fixed rate bonds, as the name suggests, offer a fixed rate of interest for a certain period. If you need to know exactly what your money will earn over several years rather than months then these accounts may appeal. Moneyfacts listings place Icesave's two and three year accounts, offering 6.6% and 6.5% respectively at the top of the tree for longer term fixed accounts. You will need a minimum deposit of £1,000 to open the accounts. The Halifax Guaranteed Reserve Bond comes in the two or three year account, both paying 6.35% and requiring deposits of £500. Birmingham Midshires Direct Internet Fixed Rate Bond can be opened for just £1 and runs for a year or six months, offering interest of 6.81% or 6.76% respectively. There is a telephone-run version of the one year bond which also offers 6.76% if you want to lock the rate in for longer. Alternatively, Saga's Fixed Rate Savings Account also offers 6.76% for one year and can also be opened with £1. "There's a lot of noise in the fixed rate bond market with a wealth of launches and competitive rates topping 6.8% AER - and we can only expect more to come, " says Moneysupermarket's Kevin Mountford. But he adds: "While the current rate environment and base rate cut would suggest customer pricing should start to come down, this has yet to be seen. I would suggest anyone interested in these bonds moves quickly as no one can predict how long they might last." If you prefer to tuck your cash away for a few months, then with a £250 deposit you can open a Chelsea Building Society 90-day notice account and earn 6.3% or Dunfermline BS offers 6.25% on its 30-days notice Guaranteed 30 account, which can be opened for just £1. All rates correct as at 29/4/08 from Moneyfacts.co.uk. If you need instant access... The majority of savers like the comfort of knowing that if they require immediate access to their money, particularly in an emergency, they can get it. But with some accounts this comes at a price. On almost a quarter of accounts there are some strings to be wary of when making withdrawals. Some accounts either reduce or pay no interest in the month a withdrawal is made, while others allow only a set number of withdrawals a year. One lender - Leeds BS - will actually close you account if you make more than two withdrawals each year on its Premium Access and Postal Max accounts, according to data from Moneyfacts. "Some of these accounts pay market-leading rates but just by making a few withdrawals a year, you could lose out on hundreds of pounds of interest. The Britannia BS Homesaver is aimed at those looking to save a deposit to buy a house," says Moneyfacts' Michelle Slade. "If you needed to access your money and made 5 withdrawals a year on a balance of £10K you would of lost £563.72 in interest. Thankfully most institutions have products which don't have penalties for making withdrawals and still pay a high rate on interest. Birmingham Midshires e-Saver pays 6.50% and Anglo Irish Bank Easy Access Deposit pays 6.05%.Savers need to make sure they check the terms and conditions before signing up for any account. Make sure the account thoroughly suits your needs, otherwise you could see yourself substantially out of pocket just for accessing your own money." Instant access accounts and restrictions
Source: Moneyfacts.co.uk 1.5.08 Useful links: |
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