Don't panic about rising inflation and interest rates -- use them to your advantage by picking a top savings account. We give you the low-down on some top places to stash that cash.
If you listen to the news these days you can be forgiven for thinking that everything is dire. Recent headlines have included the fact that house prices are becoming increasingly unaffordable, with first time buyers being priced out of the market. Interest rate rises are starting to bite and causing homeowners to struggle making repayments.
But on the flip side, there is some good news. The four interest rate rises we've seen since last August have meant that savings can earn some of the highest rates seen since 2001. And while you may think that high rates of inflation are terrible for the economy, if your money is in an account linked to inflation you could positively be quids in, especially if you're a higher rate taxpayer.
Take the National Savings and Investments Index linked Savings certificates, for example. The term index- linked in this case means that the rate is linked to the Retail Price Index (RPI) (currently at 4.3%). This means that the value of your investment increases in line with inflation and earns guaranteed interest rates and your returns are tax free.
Of course, as we can't predict the rate of inflation it's hard to know what you'd end up with upon maturity, but looking at the returns that you could receive from the current issue (assuming the inflation rate stays the same) you could be looking at 5.65% AER -- which is an effective return of 9.4% AER for a higher rate taxpayer. Not bad.
Of course, savings certificates aren't the most flexible form of investment -- you have to tie your money up for three or five years in this case and a lot can happen in that time. But if you're not one for taking risks and you do pay higher rate tax, index-linked savings certificates could be a good choice.
However, for those of you out there who are like me, and prefer to earn a good rate whilst being able to get at your cash, I've got more good news as there are some great internet savings accounts out there that offer just that.
Top Instant Access Savings Accounts
Take Sainsbury's bank, for example. Its Internet Saver account already paid a very respectable 5.75% AER on deposits of £1+ in May. However, it has recently boosted this by a quarter of a per cent (regardless of the fact that the base rate did not change this month) meaning that it now pays a fantastic 6% AER and thus tops the Moneyfacts tables.
Regular readers may remember that this account was my top tip for ING Direct fans to switch to all the way back in May, due to the fact it also allows you to open multiple accounts (and label them as Holiday, Car etc), so if you haven't already switched, you may want to consider it now.
Another internet savings account with a great rate at the moment is from Icesave, paying 5.95% for deposits of £250+, with a promise to match or better the base rate until October 2011.
Both the Sainsbury's bank and Icesave savings accounts are my top picks as they are both instant access and pay a great rate that isn't bolstered by bonuses. If you can put up with some rules and regulations, the HSBC Online Saver also pays 6%, but you won't get any interest in any month you make a withdrawal -- so clearly if you will be making any withdrawals one of the previous accounts would be a better option.
There are certainly some great places to stash that cash at the moment, so check out the rate your money is earning and consider moving it to a superior account. Don't forget to use that cash ISA allowance, too! And remember, rising inflation and interest rates are not always a bad thing.
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