Protect yourself from falling savings rates
Lenders are slashing their savings rates once again. So if you're sick of earning next to nothing on your savings account, now's the time to switch...
I have to confess I am getting a little bored. And if you’re curious to know why I am bored (or even if you’re not), I’ll tell you.
Quite simply, I’m bored of continually hearing about the pitiful rates of interest most savings accounts are currently paying. In fact, I am starting to wonder why I even bother trying to save.
Unfortunately, over recent days, there’s been yet more uninspiring news after Sainsbury’s and Tesco slashed the rates on their internet savings accounts. Both now pay 2.60% - hardly anything to get excited about.
Sadly, the misery doesn’t end there. Barclays is also cutting the rate on its Golden ISA on 1 November to 2.23% from the current 2.55%. (Note that the Golden ISA is no longer available to new customers. New customers can apply for the Golden ISA 2 which pays 2.08%.)
So despite the Base Rate remaining at 0.5% since March 2009, savers are STILL getting a raw deal. It’s not even the fact that rates are remaining unchanged that irritates me – it’s that they are still being cut in many cases. Unfair? Yes, I think so.
However, if you are a keen saver, don’t give up just yet. By simply doing a little research it is still possible to find a better deal out there. So let’s take a look at some of the best savings accounts on the market.
Easy access
The table below highlights eight of the best-buy easy access savings accounts on the market right now:
|
Provider and account |
Interest rate (AER) |
Minimum deposit |
Need to know |
|
2.80% |
£1 |
Rate includes 2.30% fixed bonus for 12 months. |
|
|
2.80% |
£1 |
Rate drops to 2.60% for non-current account holders. One penalty-free withdrawal per year. |
|
|
2.75% |
£1 |
Rate guaranteed for 12 months. Reverts to the standard variable rate - currently 0.50% - after this. |
|
|
2.75% |
£1 |
Rate includes 1.25% fixed bonus for 12 months. |
|
|
2.75% |
£1 |
Rate includes 2.25% fixed bonus for 12 months |
|
|
2.75% |
£1 |
Rate includes 2.25% variable bonus for 12 months |
|
|
2.60% |
£1 |
Rate rises to 2.80% for current account holders. One penalty-free withdrawal per year. |
|
|
2.60% |
£1 |
Rate includes fixed bonus of 1.35% for 12 months |
|
|
2.60% |
£1 |
Rate reverts to 0.5% after 12 months. Up to 5 withdrawals permitted in 12 months. |
As you can see, savings rates are nothing to start jumping up and down about. However, if you are looking for a better return on your savings, it is still possible to earn an interest rate of 2.80% on your easy access savings. The AA Internet Savings Account and the Halifax Web Saver Extra both offer this rate of interest – although you will need to be a Halifax current account holder to qualify, otherwise the rate drops to 2.60%.
Inflation is the enemy when it comes to your savings because it attacks real returns, and reduces the purchasing power of your cash.
Just bear in mind that the AA Internet Savings Account includes a fixed bonus of 2.30% for the first year – so after that period, you may need to hunt out a more competitive savings account. You should also note that the Halifax Web Saver Extra will only allow you to make one withdrawal per year, which may not be terribly convenient.
However, one of my favourite accounts in the table is the ING Direct Savings Account. This account offers a competitive fixed interest rate of 2.75% for the first year - so you know the rate won’t fall below this level until the 12 month period is up. This provides some much needed reassurance in an uncertain market.
Fixed rate bonds
If you know you won’t need to get your hands on your cash for a year or more, you might prefer to tie up your funds in a fixed rate bond. By doing this, you’re likely to get an even better rate of interest.
For example, if you’re happy to lock up your money for one year, you can currently earn 3.15% with the Baroda Max 1 Year Fixed Rate Bond. You will need a minimum investment of £500 and you won’t be able to make any withdrawals for that 12 month period.
Alternatively, the Aldermore 1 Year Fixed Rate Bond offers a slightly lower rate of 3.01% and you’ll need a minimum deposit of £1,000.
If you’d prefer to go for a two year fixed rate bond, again both Baroda Max and Aldermore are at the top of the tables. The Baroda Max 2 Year Fixed Rate Bond offers an interest rate of 3.80%, while the Aldermore 2 Year Fixed Rate Bond offers a rate of 3.75%.
In today's video, I'm going to highlight five things you should consider when choosing a savings account.
Moving onto three year bonds, the same lenders top the charts once again. The Baroda Max 3 Year Fixed Rate Bond pays 4.3%, and the Aldermore 3 Year Fixed Rate Bond pays 4.15%.
The ICICI HiSAVE 3 Year Fixed Rate Bond also offers 4.15% and you will need a deposit of at least £1,000.
Personally, I wouldn’t recommend tying up your funds for longer than three years. After all, interest rates could jump over the next couple of years, and what had initially been a competitive savings account could rapidly turn into one that isn’t!
However, if you do want to go for a longer-term fix, the Aldermore Four Year Fixed Rate Bond offers an interest rate of 4.25% (so you’ll actually get a better rate with the Baroda Max 3 Year Fixed Rate Bond), while the Baroda Max 5 Year Fixed Rate Bond pays 4.9%.
And finally, if you’re after tax-free savings, make sure you take a look at the top 18 cash ISAs where you can find out about all the best deals! Happy saving!
If you have an opinion on savings, why not start a discussion in the Grow your wealth group about it?
More: The top 20 savings accounts | Earn up to 9% on your savings
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