Inflation hits 5.6% - get the best new savings accounts quick!
As inflation soars, Robert Powell takes a look at how to protect your savings...
"Raise the base rate or the pig gets it!" were the cries outside the Bank of England as the Save Our Savers campaign demonstrated against the historically low bank rate this month.
In the end, Bertie – the group’s papier-mâché porcine pal – was executed with a mallet. Perhaps he was meant to be a symbol of the ravaging impact that inflation, spurred on by the low base rate, is having on Britain’s savers?
If so, poor old Bertie will have been spinning in his grave as the inflation figures for September were announced earlier this week. The rate of Consumer Prices Index (CPI) inflation is now 5.2%, up from 4.5% In August; the highest rate since September 2008.
The Retail Prices Index (RPI) also rose to 5.6% - the highest rate in 20 years.
But how can a stretched British public protect their savings from these soaring rates of price rises?
Well, getting hold of a decent savings account is a good start.
Fixed rate ISAs
Cash ISAs should be your first port of call if you’re after a savings account, as they pay interest completely tax-free. You can deposit up to £5,340 of new funds into a cash ISA every financial year. However this deposit has to be made into one account, as you can’t split your allowance between ISAs in the same tax year.
So if you have used up part of your allowance since April, but now fancy a new ISA – you’ll need to get hold of an account that allows transfers in. From here, you can shift over your existing balance to the new account (along with any balances from previous tax years, if you want to).
But whatever you do, don’t withdraw the cash from the ISA when making the transfer, as this will mean it loses its tax-free wrapper. Get a transfer form from your new provider instead.
Here are the best rates around at the moment for fixed term ISAs:
|
ISA |
Term |
Rate (% AER) |
Minimum |
Transfers allowed? |
|
To 31.12.12 |
3.30% |
£100 |
Yes |
|
|
To 31.12.12 |
3.30% |
£100 |
Yes |
|
|
2 years |
3.50% |
£500 |
Yes |
|
|
To 06/12/13 |
3.70% |
£1,000 |
Yes (have to transfer money in from another provider’s ISA) |
|
|
3 years |
3.80% |
£500 |
Yes |
|
|
4 years |
4.30% |
£500 |
Yes |
|
|
5 years |
4.40% |
£500 |
Yes |
Source: lovemoney.com ISA centre
Predictably the best interest rates are available to those prepared to lock their cash away for the longest period. Halifax’s four and five year deals come out on top for long-term ISAs offering 4.30% and 4.40% respectively.
However you should always think hard before stashing your cash away for a substantial amount of time, especially in the current climate. As we all know, the base rate is still at a record low of 0.5%. But it won’t stay this way forever. And when the Bank of England does eventually up its rate, the ISA market should take a shot in the arm, and become more competitive. The last thing you want when this does happen is to be stuck with a (relatively) paltry interest rate on a long term fixed ISA.
Instant access ISAs
If you fancy a bit more flexibility built into your account, here are the top instant access ISAs currently around:
|
ISA |
Rate (% AER) |
Bonus |
Minimum |
Transfers allowed? |
|
3.00% |
Rate guaranteed for 12 months |
£1 |
No |
|
|
2.80% |
1% for 12 months |
£1 |
Yes |
|
|
2.75% |
1.75% for 12 months |
£1,000 |
Yes |
Source: lovemoney.com ISA centre
As you can see, if you plump for the ING Direct account you’ll be able to earn 3.00% and still get access to your nest egg. However, when you take out any easy-access ISA (or bond) you should always watch out for any bonus tacked onto the main interest rate.
In the table above, both the Principality and Nationwide accounts come packaged with such a bonus that drops away after a month, leaving you with a rubbish interest rate. The ING Direct account is identical in all but words; here the ISA reverts to the provider’s standard rate: 1.00%, after 12 months. So if you opt for any of these three deals, you’ll need to switch accounts after a year.
But if you have already used up your entire ISA allowance for this year – fear not; you can still get hold of a regular bond.
Savings bonds
Here are the best instant access and short term savings bonds currently around:
|
Account |
Rate (% AER) |
Term |
Minimum |
Need to know |
|
3.12% |
Instant access (one penalty free withdrawal per year) |
£1,000 |
1.58% bonus rate for 12 months |
|
|
3.10% |
Instant access |
£1 |
2.60% bonus rate for 12 months |
|
|
3.01% |
Instant access |
£1 |
1.36% bonus rate for 12 months |
|
|
3.40% |
1 year |
£1,000 |
|
|
|
3.40% |
1 year |
£5,000 |
Interest must be paid into a NatWest curr acc |
|
|
3.80% |
2 years |
£5,000 |
Interest must be paid into a NatWest curr acc |
|
|
3.50% |
2 years |
£500 |
Could qualify for Halifax savers prize draw |
Source: lovemoney.com savings centre
Again, alarm bells should be ringing when you set eyes on the instant access accounts in the table above: as all three come packaged with a bonus. Santander’s eSaver has a huge 2.60% 12 month rate tacked onto the headline 3.10% rate.
The NatWest Preferential Fixed Bond emerges as the best medium term account, offering 3.80% if you lock away your savings for two years. However both of the NatWest deals in the table above require you to hold a current account with the provider that the savings interest can be paid into. Head over to our current account comparison centre for full details of NatWest’s debit deal offerings.
Onto longer term deals...
Longer term deals
Here are the options available to savers prepared to lock away their money for three years or more:
|
Account |
Rate (% AER) |
Term |
Minimum |
|
4.15% |
3 years |
£1,000 |
|
|
3.75% |
3 years |
£500 |
|
|
4.55% |
5 years |
£1,000 |
|
|
4.50% |
5 years |
£1 |
Source: lovemoney.com savings centre
The best deals in the long term savings market come from Vanquis Bank’s two new deals; a three year and five year high yield bond. These deals pay 4.15% and 4.50% respectively. But again, think hard before you go locking your cash away for five years as the early exit fees for these accounts are very pricey.
Finally, for an innovative way to protect your money from rising prices, without even going near a bank, read Savers: Earn 11% on your money.
More: Compare bonds and ISAs with lovemoney.com | Scary news for savers | New savings accounts that beat inflation
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