The 1.5% base rate cut may be good news for borrowers, but savers will suffer. Now could be a good time to lock-in the return from your savings.
From a saver's perspective, yesterday's base rate cut to 3% was not welcome news, and speculation that it could fall further in coming months is even less encouraging.
It can be pretty disheartening to know you are getting a lower rate of return on your cash, so what can you do to protect your savings?
Fixed-rate bonds
One option is to take out a fixed-rate bond. These bonds allow you to lock-in your return for 6 months, a year or even longer. That's a very attractive option in an environment where interest rates are falling.
One thing you need to remember, however, is that fixed-rate bonds are only suitable if you are prepared to leave your money untouched for the set period, as the majority of bonds will not allow you to make withdrawals.
Another crucial point to note is that many of the rates available today, may not be around next week thanks to the base rate cut. In fact, some banks and building societies have already cut the rate on their bonds, while others have withdrawn them completely.
So for those of you who want to get in quick, here's a list of some of the best accounts available at the time of writing:
Company | Account | Gross AER | Minimum deposit | Term/Maturity Date |
|---|---|---|---|---|
Akbank N.V. | AK Deposit Account | 7% | £1 | 1 year |
Birmingham Midshires | Fixed Rate Bond | 6.97% | £1 | 6 months |
Birmingham Midshires | Fixed Rate Bond | 6.60% | £1 | 1 year |
Bank of Cyprus UK | 24th issue | 6.86% | £1 | 6 months |
Bank of Cyprus UK | 25th issue | 6.55% | £1 | 2 years |
Bank of Cyprus UK | 26th issue | 6.50% | £1 | 1 year |
SAGA | Fixed Rate Savings | 6.35%* | £1 | 1 year |
| ICICI | HiSAVE Fixed Rate Account | 6.6% | £1000 | 1 year |
* You need to be 50 or over to qualify for the SAGA account.
The interest rates on all of the above accounts are pretty impressive and these accounts will certainly provide you with a healthy return. Plus, with a fixed rate you'll know exactly how much you'll get back at the end of the term, unlike variable rate accounts.
Again, I should stress there can be no guarantee these rates will stay the same as we move into next week, so if you want to open one of these accounts, now is the time to do it.
There is, however, a bit more certainty about the ICICI and Saga accounts. The rates for both accounts have already been reduced following yesterday's cut, so there's a good chance that their rates in the above table will hold steady for a while. Please note that you have to be 50 or older to qualify for the Saga account.
Safety
One other potential problem is safety. In other words, what might happen if your bank went bust? My Foolish friend, Jane Baker, outlined her concerns on this issue earlier this week.
Personally, I'm more positive. As long as your bank is protected by the Financial Services Compensation Scheme (FSCS), the worst case scenario is that you will get your money back after a delay - assuming that you don't save more than £50,000 with banks that hold one banking licence.
Is there an alternative?
If you prefer not to lock away your savings and don't wish to take out a fixed-rate bond, you may prefer to find a better variable rate account. There are still some pretty decent rates around, but do remember there can be no guarantee that the rates you see today will last for much longer, and they can change at any point.
Compare great savings accounts with the Fool.