The big savings rip-off
The base rate may have remained at 0.5% for more than two years, but in some cases, savings rates have continued to fall.
If you’re a saver, I’m not going to pretend that you’ve had an easy time of it of late. After all, we all know that interest rates on savings accounts are looking utterly pathetic right now – and have been for the past few years.
Of course, this isn’t terribly surprising, given base rate has remained at 0.5% since March 2009. But it’s frustrating nonetheless. And what’s even more frustrating is that in some cases, savings rates have continued to deteriorate over the past couple of years, even though base rate has remained unchanged.
Recent research from Defaqto has compared the average and highest savings rates currently available with those available just after the base rate was first cut to 0.5% more than two years ago.
So let’s take a closer look at the findings.
Changing rates
|
Savings account |
Average gross AER % March 2009 |
Average gross AER % May 2011 |
Difference |
Highest gross AER % March 2009 |
Highest gross AER % May 2011 |
Difference |
|
Instant/easy access: £1,000 balance |
0.89% |
0.96% |
+0.07%
|
3.26% |
3.01% |
-0.25% |
|
1 year fixed rate bond: £5,000 balance |
2.73% |
2.82% |
+0.09% |
4.10% |
3.50% |
-0.60% |
|
2 year fixed rate bond: £5,000 balance |
2.84% |
3.50% |
+0.66% |
4.10% |
4.00% |
-0.10% |
|
3 year fixed rate bond: £5,000 balance |
3.14% |
3.73% |
+0.59% |
3.91% |
4.30% |
+0.39% |
|
4 year fixed rate bond: £5,000 balance |
3.19% |
4.02% |
+0.83% |
4.00% |
4.50% |
+0.50% |
|
5 year fixed rate bond: £5,000 balance |
3.07% |
4.35% |
+1.28% |
4.10% |
5.05% |
+0.95% |
|
Regular monthly savings account (if save £100 each month) |
2.70% |
2.82% |
+0.12% |
10.00% |
8.00% |
-2.00% |
|
Easy access cash ISA: max annual limit |
1.74% |
1.76% |
+0.02% |
3.61% |
3.35% |
-0.26% |
|
1 year fixed rate cash ISA: max annual limit |
2.70% |
2.86% |
+0.16% |
3.20% |
3.30% |
+0.10% |
|
2 year fixed rate cash ISA: max annual limit |
2.81% |
3.34% |
+0.53% |
3.30% |
3.70% |
+0.40% |
|
3 year fixed rate cash ISA: max annual limit |
3.01% |
3.81% |
+0.80% |
3.31% |
4.25% |
+0.94% |
|
4 year fixed rate cash ISA: max annual limit |
3.05% |
4.25% |
+1.20% |
3.35% |
4.50% |
+1.15% |
|
5 year fixed rate cash ISA: max annual limit |
3.04% |
4.45% |
+1.41% |
3.25% |
5.00% |
+1.75% |
Source: Defaqto. Data correct as of 5.5.11.
The ups and downs
Looking at the table above, you’ll notice there is some positive news – because average savings rates are actually higher now than they were back in 2009. That said, if you have an instant access savings account, I’m not sure anyone is going to be excited by an increase of 0.07% over the past two years!
Instead, it’s the long term savings accounts that have seen the largest increases – particularly four and five-year bonds. But the major problem with this is that if you locked into a five-year fixed rate bond two years ago and rates have since risen, your particular account is unlikely to still be competitive now.
What’s more, if you decide to lock into a long-term bond now because rates are looking more competitive than two years ago, you could be making a mistake. After all, interest rates are likely to rise over the next year – and as a result, your account may not be so competitive a year or two down the line.
Getting the right savings account isn’t as easy as it seems, but by avoiding these four nasty catches you won’t go far wrong
Meanwhile, if we take a look at how best buy savings accounts today compare to those back in March 2009, it’s a different story. That’s because in many cases, best buy savings rates have actually fallen over the past couple of years – so whereas back in 2009 you could earn as much as 3.26% on an instant access account, you’re now looking at a lower rate of 3.01%.
Similarly, with a one-year fixed rate bond, back in March 2009, you could enjoy a best buy rate of 4.10%. Today you'll be lucky to get 3.50%. So if you ask me, given that base rate hasn’t even moved, savers really are getting ripped off!
And once again, it’s the longer term savings accounts that have seen the increases, with cash ISAs in particular having improved. But as I’ve already stated, locking in for four or five years may not be the best decision to make when interest rate rises are imminent.
What to do
Of course, all this doom and gloom shouldn't prevent you from seeking out the best rates possible for your savings. Unfortunately, however, if you want to do this, you will need to regularly review your savings and be prepared to move them around when necessary.
So let’s have a quick look at some of the best savings accounts on the market.
Easy access
|
Account and provider |
Interest rate (AER) |
Minimum deposit |
Need to know |
|
3.05% |
£1,000 |
Rate includes 1.51% bonus for 12 months. One penalty-free withdrawal per year. |
|
|
3.01% |
£1,000 |
Rate includes 1.5% bonus for 12 months. |
|
|
3% |
£1 |
Rate includes 2.5% bonus for 12 months. |
|
|
3% |
£1 |
Rate fixed for 12 months. |
|
|
3% |
£1 |
Rate falls to 2.80% if not a current account holder. Rate drops to 0.25% after 12 months. |
Fixed rate bonds
|
Account and provider |
Term |
Interest rate (AER) |
Minimum deposit |
|
1 year |
3.50% |
£1,000 |
|
|
Until 30.04.12 |
3.40% |
£1,000 |
|
|
2 years |
4.01% |
£1,000 |
|
|
Until 30.04.13 |
3.95% |
£100 |
|
|
3 years |
4.30% |
£1,000 |
|
|
3 years |
4.25% |
£1 |
|
|
4 years |
4.40% |
£1,000 |
|
|
5 years |
5.05% |
£1 |
Finally, if you’re after a cash ISA, one of the most competitive ISAs on the market right now is the AA Internet Access ISA offering an interest rate of 3.35%, including a 1.65% bonus for 12 months. For more information, read The best cash ISAs for the new tax year.
More: Don’t make this stupid savings mistake | Your savings may be at risk
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