Auction Your Way To A Fortune

Providing you have £30,000 or more, there's a new way to hunt out a better return on your savings.

This article was first sent to readers as an email in our 'Afternoon' series.

I've banged on enough recently about the appalling rate of interest many of us are now receiving on our savings accounts. So I won't start this article by going on about it again. Instead, I'm going to tell you all about a new way to seek a better return for your savings.

Officially going live on 2 February, MaxBips.com is an auction website for fixed-term cash deposits. The site enables you to search for a more competitive interest rate for your savings, by allowing banks and building societies to bid interest rates for your money.

There are just a couple of drawbacks -- firstly, you'll need at least £30,000 to qualify to use the site, and secondly, you'll have to pay an annual fee -- currently £49.

How does it work?

To use MaxBips.com, you'll need to specify how much you want to deposit as well as the length of the term. As I said above, you must deposit at least £30,000, but there's currently no maximum amount. Generally, you can deposit your money from anywhere between 30 days to two years, although if you have a very large sum of money, it's possible to deposit for as little as one night.

The auction process will then begin, with several banks and building societies, such as Lloyds and HSBC, bidding an interest rate for your cash. Bidding is open for 30 minutes, and once it's over, you'll receive an email outlining all of the bids.

You'll then have half an hour to choose which interest rate you want -- if you want one at all, that is. If you're not happy with any of the offered rates, you don't have to accept one.

If you do decide to accept a bid, your details will be given to the winning bank. You'll then receive instructions on how to complete the deposit.

Fees

If you get in quick, you can take advantage of MaxBip.com's introductory deal. This means you'll receive an upgrade to its premium subscription (usually £149 a year) at no additional cost to the standard subscription (£49).

In other words, for £49 a year, you can run as many auctions as you like and deposit as much money as you like. Usually the standard subscription limits you to 50 auctions and a maximum deposit of £100,000 (per auction).

How safe is it?

Safety is understandably a big concern for many savers right now. And deciding which bank/building society to trust your money with is a big decision.

So MaxBips only allows banks and building societies authorised by the Financial Services Authority (FSA) to bid on the site. This means only banks covered by the UK Financial Services Compensation Scheme (FSCS) can participate in the bidding process -- this includes overseas banks which are authorised to operate in the UK and are covered by the FSCS, such as ICICI.

Banks within the European Economic Area can also bid as they are covered by their own deposit protection schemes. (Note that if the amount offered by these schemes is below £50,000, the FSCS will top it up.)

Is it worth it?

MaxBips.com certainly has the potential to be a great way of getting a better return on your savings (providing you have a big enough deposit of course).

But if you do consider using the site, I would recommend making a note of interest rates offered on high street accounts first, such as fixed rate bonds. That way you'll know whether the rates you are offered at auction are better or worse than the rates you can get elsewhere.

To give you an idea of some of the interest rates you could be offered on the site, here's an example of a recent online auction for a deposit of £50,000 for a term of 360 days:

In this case, the interest rates offered are nothing to get too excited about. In fact, you'd get a better interest rate on the high street. ICICI's HiSAVE fixed rate saving account currently pays 4.30%, for example.

That said, this won't always be the case. The rates you will be offered at auction are likely to change depending on banks and building societies' demand for cash deposits. So if demand is low, your rates will be lower, but if demand is high, you could be offered a better rate than you would be offered on the high street.

It's also worth remembering not every bank or building society involved in this scheme will bid every time. Who bids will partly depend on the size and term of your deposit. The larger the deposit, and the longer the term, the more interest you are likely to receive.

So at a time when it's becoming harder and harder to get a decent return for your savings, it's worth considering all options to make sure you get the best return you can. What's more, MaxBips could offer you more flexibility when it comes to the term of the deposit, as many high street accounts won't allow you to deposit the money for just a month or two.

Another way

Of course, if you'd prefer to steer clear of banks altogether, you could consider using Zopa to gain a better return on your savings. Zopa works by allowing you to lend your money directly to borrowers at a competitive rate of interest. In fact, over the past year, the average rate of return has been an impressive 9.1%.

But if you do plan to use Zopa, you should be aware there's no guarantee the borrower won't default on the loan you have given them. Although Zopa tries to offset the risk by spreading the money you invest across many different borrowers, it's still a risk. Admittedly, it's a fairly small risk -- fewer than 0.2% of borrowers have defaulted over the past year-- but this could increase, given the current climate.

What's more, your savings won't be protected by the FSCS, so you need to decide whether you're prepared to take more of a risk to get a better rate of return.

Overall, it seems the outlook for savers will remain gloomy for some time to come. So here's to finding more creative and novel ways of getting the most out of our savings! Happy saving!

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