Although the Bank of England has cut the base rate to 5.25%, these savings accounts pay at least 6.3% a year.
If you haven't already heard, the Monetary Policy Committee of the Bank of England has cut the Bank's base rate by a quarter-point, to 5.25% from 5.50%. This is the second quarter-point cut since December, which is good news for overburdened borrowers, but bad news for sensible savers.
As always, news of a rate cut causes a flurry of announcements as banks and building societies realign their lending and savings rates. For example, with effect from Thursday, 7 February, National Savings & Investments cut the interest rate on its popular Direct ISA (a tax-free savings account) by the full 0.25% to 5.80% a year.
Alas, not many of the four thousand or so different savings accounts in the UK pay an interest rate which exceeds the base rate. Indeed, a recent survey concluded that the average easy-access savings account pays just 3.25% a year before tax. After basic-rate tax at 20%, this falls to 2.6% a year, or a pitiful 1.95% after higher-rate tax at 40%.
The bad news that inflation (the tendency for the price of goods and services to rise over time) is running at 4% a year, taking the Retail Prices Index (RPI) measure. Thus, any deposits earning less than this after tax are effectively losing money, which is crazy!
Of course, the sensible thing to do is to transfer your spare cash into a savings account which pays a table-topping rate of interest. The good news is that, thanks to the worldwide credit crunch, there is fierce competition for savers' spare cash. Thus, several of the top-paying savings accounts haven't lowered their rates, despite the base rate falling by 0.5%.
Indeed, if you shop around carefully, you can find first-class savings accounts which pay double the average interest rate of 3.25% a year. That's right, you really can earn a mighty 6.50% a year while enjoying unlimited access to your nest egg, rainy-day money or emergency fund, as the following table proves:
Best Buy easy-access savings accounts for £1,000+
Account | Rate (% AER) | Minimum deposit (£) | Rate guarantee |
|---|---|---|---|
Kaupthing Edge | 6.50 | 1,000 | At least 0.30% above base rate until 01/02/12 |
FBN Bank (UK) FirstSave | 6.50 | 100 | At least 0.25% above base rate until 01/01/10, then at least base rate until 01/01/12 |
6.41 | 1 | At least 0.30% above base rate until 31/12/11 | |
Bradford & Bingley Internet Saver Issue 2 | 6.40 | 1 | At least equal to base rate until 01/07/09 |
6.30 | 250 | At least 0.25% above base rate to 01/10/09, then at least equal to base rate to 01/10/11 |
Note that I've excluded any accounts which restrict the number of withdrawals each year or penalise you for withdrawing money by slashing your interest rate. Also, I've left out accounts with introductory bonuses, as these tend not to be Best Buys for periods exceeding a year.
In case you're not familiar with some of these brands, Kaupthing is a new Icelandic entrant into the UK savings market. It follows in the footsteps of its rival Landsbanki, which provides the Icesave account. ICICI Bank is the UK arm of one of India's largest banks, and FBN Bank is the UK subsidiary of a long-established Nigerian bank.
All of the above banks are authorised and regulated by the Financial Services Authority, plus all are members of the Financial Services Compensation Scheme. Thus, the first £35,000 of your money is protected by a government safety-net, so you can invest this sum in any of these banks without worrying. If you have more than £35,000, consider spreading it between accounts to maximise your consumer protection.
Good luck with giving your savings a shot in the arm!
More: Use the Fool to find a super savings account | Top Ten Savings Accounts | Track Your Lost Savings