Take a look at the best variable savings accounts around.
This article was first sent to Fools as part of our 'Afternoon' email series.
It's been a tough time for savers these past couple of months. After riding a sustained wave of high savings rates, many were suddenly left shaken by the Icelandic banking disaster.
Now, after last Thursday's dramatic interest rate cut and more in the pipeline, everyone is left wondering not only how low savings rates might go - but how quickly too.
If you've got lots of savings, you may have already taken the smart move and tied yourself into a fixed-rate bond.
But what if you've missed the fixed rate boat? Or what if you want instant access to your savings - so a fixed-rate bond, which locks your savings away, isn't right for you?
Here's the current cream of the variable rate savings crop:
Provider | Interest Rate | Parent Company and Compensation Details | CDS of Parent Company |
|---|---|---|---|
Akbank N.V AK Savings Account | 6.5% | Akbank T.A.S. (_100,000 under the Dutch Depositors' Compensation Scheme) | Akbank CDS unavailable. Citibank CDS is 196.2 |
Tesco Personal Finance Internet Saver | 6.5% (includes a 1.5% bonus, payable for 12 months) | Tesco (£50,000 under the Financial Services Compensation Scheme (FSCS)) | 105.0 (Tesco PLC) |
6.5% (1% bonus payable for one year) | Capital One Bank (£50,000 under the Financial Services Compensation Scheme (FSCS)) | 203.1 | |
The AA Internet Saver Account | 6.46% | HBOS (£50,000 under the FSCS - included in HBOS licence) | 110.0 (HBOS) |
6.3% | Santander (£50,000 under FSCS - A&L has a separate FSA licence to Santander) | 111.8 (A&L CDS) | |
6.16% | ICICI (£50,000 under FSCS) | 817.0 | |
6% (including 1.67% bonus for 12 months) | ING Direct N.V. (_100,000 under the Dutch Depositors' Compensation Scheme) | 89.4 | |
Abber Instant Access Saver Special Issue 2 | 6% (including 1% bonus for 12 months) | Santander (£50,000 under FSCS) | 83.4 |
As you can see from the table, we live in unusual times. With the Bank of England base rate currently at 3%, you'd normally expect changes in the base rate to be filtered down to savers and borrowers alike. However, the current economic situation has helped to paint a very different picture.
Despite the Bank of England's best efforts, many institutions have failed to pass on this and other recent rate cuts. Banks are continuing to tighten their belts, and are hoarding funds to bump up their balance sheets.
As a result, in some cases, providers are offering gross interest rates that are double the current base rate, in order to secure our cash. Although rates are set to come down in the near future, I still think they will float well above the current base rate of 3% for some time.
Asking about Akbank
Looking at the table, you'll probably notice an unfamiliar name at the top of the list: Akbank. For savers burnt by the Icelandic saga, this may set alarm bells ringing. But before you judge a book by its cover, here's the lowdown on Akbank.
Despite having its European headquarters in the Netherlands, Akbank is actually Turkish, and is jointly owned by the Turkish Sabanci Group and Citigroup (which owns a 20% stake in the bank).
Parent company Akbank T.A.S. was founded in 1948, and is now the largest commercial bank in Turkey. Its European subsidiary, Akbank N.V. formed in 2001, with the bank finally hitting English shores in 2006.
So how safe is Akbank? Well, Turkish banking as a whole was hit by an economic crisis during the early Noughties that saw many financial institutions go bust. Since then, survivors including Akbank have been managing their banks much more conservatively. Sound familiar anyone?
In terms of the FSCS and compensation, the bank falls under the Dutch Investors' Compensation Scheme, and covers up to _100,000 of your money (approx £77,000) in the event the bank went bust.
In search of safety
If it's safety over superior rates you're after, out of the accounts listed above, Abbey and ING Direct are deemed the safest, with five year credit default swaps (CDSs) measuring 83.4 and 89.4 basis points respectively. In my opinion, CDSs are an excellent measure of risk - you can read more about what they are in this article.
Banks with credit default swaps of 100 basis points or less are judged to pose very little risk of going bust. When you then turn to ICICI's CDS of 817, it may cause some unease. In fairness to ICICI, this has come down from over 1,000 basis points. But for me, the jury's still out on this one.
If you have money in a variable rate account, the most important thing to remember is to keep an eye on the returns you're getting to make sure it doesn't get left behind in any interest rate shake ups. Save smart, and keep an eye on rates, and there no reason why you won't end up a savings winner.
More: Find Out How Safe Your Bank Is | Spot Banks Before They Go Bust | Sleep Easy With This Savings Account