No matter what happens to the base rate, here's how to lock-in the return from your savings.
On Thursday the Bank of England's Monetary Policy Committee (MPC) voted to cut its Base Rate by 0.25% to 5.5%. While this may be good news for borrowers, the reduction may not be quite so welcome for savers who could face lower rates of return on their cash.
But what can you do if you're tired of being a rate tart, incessantly chasing after the highest-yielding accounts? Or worse still, you haven't got the inclination to stay ahead of the game, leaving you with a measly return.
One option is to lock-in your return. You can do this by choosing a fixed-rate bond. Don't forget, if you're going to need easy access to your cash, a bond won't be suitable for you. But if you can put your money away for a while and forget about it, a fixed-rate savings account could be good.
It certainly seems that banks and building societies are keen to get funds in through the door. Some -- particularly those who are also mortgage lenders -- have recently upped returns, specifically in the short-term fixed-rate bond market.
What's more, a short-term bond can offer a really healthy rate of interest. The table below shows six of the best accounts around at the moment. The Fixed Rate Bond from Birmingham Midshires tops the table with a handsome return of 6.97% which is now 1.47% above the base rate. And a minimum deposit of just £1 puts the bond in the reach of all savers.
Top Six Short-Term Fixed Rate Bonds
Company | Account | Gross | Minimum deposit | Term/Maturity Date |
|---|---|---|---|---|
Birmingham Midshires | Fixed Rate Bond | 6.97% | £1 | 3 months |
National Counties BS | Savings Bond 20th Issue | 6.91% | £1,000 | 6 months |
Stroud & Swindon | Fixed Rate Bond Issue 62 | 6.85% | £1,000 | 03.06.08 |
Standard Life Bank | Fixed Rate Bond | 6.80% | £1,000 | 26.06.08 |
Icesave | Fixed Rate Savings | 6.76% | £1,000 | 6 months |
Anglo Irish Bank | Fixed Rate Bond | 6.75% | £500 | 1 year |
Accounts which accept applications from existing customers only or require the applicant to buy another product to be eligible have been excluded from the table.
Although, these accounts are certainly paying a more decent return than rival variable rate accounts, there are a couple of points you should be aware of. First of all, while your interest rate is locked-in, so is your cash. Most of these bonds won't allow any withdrawals, with the exception of the bonds available from National Counties Building Society and Anglo Irish Bank. But raid one of these and you'll lose 120 days' and 60 days' interest respectively.
A short-term bond may not be the answer for you if you don't want the hassle of finding a new home for your savings after a relatively short period. In that case you may prefer a longer-term bond. There are numerous accounts which lock-in your cash over a two or three year term and still provide a generous return. Here are the top six:
Top Six 2 and 3 Year Fixed Rate Bonds
Company | Account | Gross | Minimum investment | Term/Maturity Date |
|---|---|---|---|---|
Chelsea BS | ClicknSave Fixed Option 21 | 6.65% | £1 | 17.09.09 |
Icesave | Fixed Rate Savings | 6.60% | £1,000 | 2 Years |
Loughborough BS | Fixed Rate Bond 7 | 6.40% | £500 | 30.11.09 |
Icesave | Fixed Rate Savings | 6.50% | £1,000 | 3 Years |
Northern Rock | Fixed Rate Bond 294 | 6.40% | £1 | 01.10.10 |
Nottingham BS | Fixed Rate Bond Issue 33 | 6.40% | £1,000 | 01.08.10 |
Accounts which accept applications from existing customers only or require the applicant to buy another product to be eligible have been excluded from the table.
Clearly the two and three year bonds may not provide rates which are quite as appealing as the short-term accounts, but they're still pretty competitive in the context of the wider savings market.
If you like the idea of a fixed-rate account beware many are limited issues which means you'll have to get in quickly if one of them grabs your eye. Companies often close the doors early on bonds if they prove to be particularly popular.
Christmas 2008!
Ok, you might not want to even think about Christmas 2008 yet, but just a quick word on seasonal savings. If you'll have to foot a hefty bill for the festivities this year, you might want to consider lessening the blow to your finances in 2008 with a special Christmas savings account. Skipton Building Society has launched the second issue of its Christmas Saver which pays a great fixed rate of 7.55% (AER) until it matures on 24.11.08. All you have to do is fund the account with savings of between £10 and £250 each month.
It'll be interesting to see what happens to savings rates over the coming months. The repercussions of the global credit crunch have left some banks desperate for cash, meaning that many more savers are enjoying an interest rate boost. But now the MPC has cut the base rate, these great deals may not continue.
But, of course, if you're planning to put your savings in a fixed rate bond, you may not even care!
If you'd rather go for an instant access savings account where your money isn't locked away, visit our Savings Centre where we have some great accounts to choose from.
More: Cash In On The Credit Crunch | The Top Place To Stash Your Cash