Super Savings Rates Are Still Available!
Egg has upped the rate on its savings account to 6.55%.
This article was first sent to Fools as an email in our 'The Good, The Bad and The Ugly' campaign.
It's been pretty ugly in the savings market recently. Last week, two Icelandic banks, Kaupthing and Landsbanki plunged into administration, leaving thousands of savers confused and wondering if their money was safe.
But as uncertainty continues to cloud the future of banking as we know it - and despite the half-point interest rate cut by the Bank of England last Wednesday, institutions still want our cash, and are willing to reward us handsomely for it.
Hatching a savings plan
Egg is the latest bank to hatch an assault on the savings market, and has upped the rate on its savings account to 6.55% for both new and old customers transferring money into the bank.
You can make unlimited withdrawals from the account without penalty. However, the account does come attached with a 1.8% bonus for one year. After this time, the rate will revert to its standard variable rate, currently 4.75%. There is also a maximum balance of £100,000.
However, whether you're an Icelandic refugee looking where to put your cash, or just a saver left reeling from the unfortunate series of events, one question you will be asking yourself is: how safe is it?
Well, it's no secret that Egg's parent bank Citigroup has been hit by the credit crunch. In the second quarter of this year, the bank lost $7.2 billion (£4.2 billion), bringing its total credit crunch losses to over $50 billion.
Its credit default swap (which effectively measures how risky a bank is), currently stands at 357 basis points. This is double that of Lloyds TSB and Barclays.
However, just to put things into perspective, in CDS terms the market thinks Citigroup has as much chance of going bust as Marks and Spencer. In addition, the CDS for one Icelandic bank soared over 3,000 basis points before it went bust, that's way, way higher than the rate for Citigroup at 357 points.
What's more, Citigroup is a goliath in banking terms, and, with over $2.1 trillion (£1.2 trillion) in assets, is the largest bank in America using this measure.
In compensation terms, it's also worth remembering that Egg has a separate FSA license to its Citigroup parent, meaning that if you have savings with both institutions, you get £50,000 FSCS protection from each bank.
So, here's how Egg compares to the best of the rest:
Account | Interest rate (AER) | Conditions |
Alliance and Leicester eSaver Issue 2 | 6.6% | No interest paid in any month where a withdrawal is made (except July). |
West Bromwich BS Stratus No Notice Account | 6.56% | Six withdrawals allowed from the account before it is closed. |
6.55% | 1.8% bonus payable for first 12 months. | |
Birmingham Midshires e-Saver | 6.52 | No withdrawal restrictions |
Bradford and Bingley Internet Saver 3 | 6.51 | No withdrawal restrictions |
As you can see, several of the highest paying savings accounts are provided by the banks which have been in the headlines recently.
Safety in numbers
HBOS owned Birmingham Midshires was gobbled up by Lloyds TSB in a deal which has yet to be finalised, while both Alliance and Leicester and the savings arm of Bradford and Bingley were taken over by Santander.
All these banks are in better positions now they have been propped up by their stronger rivals. Plus, let's not forget the latest cash bailout by the British government.
National savings
Many savers have understandably been looking for total, absolute safety and have put their money in National Savings & Investments (NS&I). It's attractive as accounts are 100% guaranteed by the Treasury.
However, in order to get the best returns, you'll often need to tie your money up for at least three years, which isn't always a viable option.
When you compare NS&I's instant access products, it doesn't measure up so highly. For example, from 22nd October, its Easy Access savings account will pay just 1.15% AER on balances from £100 - £999, which is well below current inflation levels of 5.2%.
For some other options, take a look at this article by fellow Fool writer Cliff D'Arcy, which explores other safe havens which provide more decent returns on your cash.
If recent events are anything to go by, savings are set to be shaken up even further. However, that's no reason why your money should lose out on some pretty decent returns.
Safety may be a primary concern in these troubled times - but then again, I won't be putting my money under the mattress just yet.
Most Recent
Comments
-
Another puzzler to me is how can interest rates be about to fall? If inflation rises, and it MUST, all those with cash should spend it rather than pay for the less thrifty to borrow! I wonder what will come first? Will it be the banks(government) actually paying people to borrow (in which case I'll take out a loan and save) or will the thirties levels of inflation approach? I can remember German postage stamps overprinted with MILLIONS of deutchmarks! And Lira went similar. This was the inspiration of Hitler and Mussolini who decided to "spend" their way out of a depression. Do our politicians ever read history books? Sure, in the short term oil price will show a reduction but this is a very temporary benefit. The main problems of how to balance the books remain. We are now told that this time we won't print money, we'll borrow it. Can someone tell me where from? I don't see any rich countries making generous offers, do you?[br/]Or am I just as ignorant as dogsolitude?
REPORT This comment has been reported. -
Yes, it's often puzzled me as to why, if banks are having such a hard time borrowing money off of people, they don't increase interest rates...[br/][br/]...But then I'm one of those people who likes to talk about economics whilst not knowing an awful lot about it!
REPORT This comment has been reported. -
This is typical of how TMF has capitulated to commerce in recent years.[br/][br/]A 6.55% gross rate over one year, with strings and in a bank whose parent has a deteriorating credit rating, is boomed as "super".[br/][br/]To a basic rate taxpayer, that is a return of 5.2% net: the same as the latest published rate of inflation, which most of us belueve is massaged down by the government. [br/][br/]In other words, we depositors are asked to park our cash for no real return at all, possibly a loss of purchasing power over 12 months, and in a somewhat dicey, ethereal vault.[br/][br/]Face it, Szu-- there is no reward for thrift and deferment of gratification in this benighted country. The credit junkie is still the darling of politicians and the system of usury which has laid Britain low. [br/][br/]It has been so for most of the time since the 1930s; and until we return to honest money based on the gold standard, bad Eggs will still be the best of a bad lot.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
20 October 2008