The UK base rate is plummeting faster than the temperature. Act now to grab the good savings deals that are still out there!
This month's 1% interest rate cut left the base rate languishing at just 2% - and it looks like that's just a taste of things to come. Some economists are predicting that in the next six months, interest rates could fall to zero. That's right - nothing, zilch, zip.
Predictably, savings account providers are also slashing their rates quicker than you can say `merry Christmas'.
So is it really worth shifting your savings yet again? Or will you just end up with another measly rate when your new provider wields the knife too?
In my opinion, it's definitely worth trying to find a decent savings account before Christmas. The key is to find a fixed-rate account, so your provider won't be able to pull the rug out from under your feet in the weeks and months to come.
But you've got to act quickly! The next base rate decision is due on January 8th - and many account providers are expected to cut their rates again long before that.
What to look for
I'm going to highlight my top picks in three fixed-rate savings categories: Bonds, regular savings accounts and fixed-rate cash ISAs.
I'll outline the best rates on offer, and what you need to know about each sort of account.
Some seemingly fabulous deals come with very tricky catches (like requiring a customer to have a ten-year history of loyalty to the lender!). I'm not going to include these.
Bonds
Savings bonds (also known as term accounts) allow you to deposit a large chunk of cash, at a fixed rate of interest, for a certain period of time (usually between one and five years).
Are they right for you?
Yes if.
- You want a low-risk savings option and are happy locking a relatively large amount of money away for the full bond period.
- You want to receive regular interest payments. You can usually choose to receive the interest either monthly or annually.
No if.
- You think you may need to access your money suddenly. If you do, you'll probably be penalised with big cuts to your interest rate - and may be required to close the account completely.
- You want to make further contributions during the bond period. Many savings bonds only allow a one-off lump sum to be invested at the start of the term.
The best of the bunch
| Account | AER | Term | Minimum deposit |
| ICICI HiSave Fixed Rate Account | 5.1% | One year | £1,000 |
| Cheshire BS 2 Year Fixed Rate Bond | 4.75% | Two years | £1,000 |
You can read more about savings bonds in this article.*
Regular savings accounts
Regular savings accounts offer a decent, fixed rate of interest for a certain period of time - typically a year.
You pay into the account every month by standing order, and you get the interest at the end of the fixed-rate period, when the account `matures'.
Are they right for you?
Yes if.
- You want encouragement to save in a more disciplined way.
- You don't want to stash away a big sum all at once.
- You're confident you'll always have enough spare cash to make up the monthly amount.
No if.
- You think you may need to access your money early. You'll be penalised with interest rate cuts if you make any withdrawals before the end of the term.
The best of the bunch
| Account | AER | Minimum deposit per month | Maximum deposit per month | Term |
|---|---|---|---|---|
| Halifax Regular Saver | 6% | £25 | £500 | One year |
| Barclays Monthly Savings Account | 6% | £20 | £250 | One year |
| Abbey Fixed Rate Monthly Saver (Issue 8) | 6% | £20 | £250 | One year |
Read Earn 6%+ On Your Savings, by my Foolish colleague Szu Ping Chan, to find out more about regular savings accounts.
Fixed-rate cash ISAs
Like bonds, fixed rate cash ISAs provide a guaranteed interest rate in return for locking your money away for a set period of time (typically between one and five years).
On the face of it, their rates often aren't as good as those offered by bonds or regular savings accounts. However, the big added advantage is that returns on ISAs are tax-free.
Are they right for you?
Yes if.
- You haven't already invested £3,600 in a cash ISA this financial year.
No if.
- You think you might want to withdraw your cash before the end of the ISA term. If you do, you'll be penalised and your account may well be closed completely.
The best of the bunch
| Account | AER | Term | Deposit |
|---|---|---|---|
| first direct Regular Saver ISA | 7% | One year | between £25 and £300 per month |
| Cheshire BS 12 Month Fixed Rate Cash ISA | 4.5% | One year | £1000-£3,600 |
| Nationwide BS 3 Year Fixed Rate ISA Bond | 4.25% | Three years | £1-£3,600 |
A final note of warning: The juicy 7% rate offered by first direct comes at a price. I've included it because I think it is excellent value in the current climate - but the following specific catches need to be taken into account:
- You can't deposit your whole £3,600 ISA allowance in one go - instead you have to save between £25 and £300 every month. This means the account may be more suited to those who don't have a large sum to invest at the beginning of the term.
- The money has to be transferred, by standing order only, from a linked 1st account. This means that in effect, you have to transfer your current account management to first direct as well.
- Transfers in from other cash ISAs aren't allowed.
So there you have it. If you think I've overlooked a particularly good fixed-rate account, please let your fellow Fools know in the `comments' section below.
Good luck!
More: Two Smart Ways To Get A Better Savings Rate | Time's Running Out For Icesave Compensation
* Editor's note: After this article was written, news came through that both the Chairman and Chief Executive of Anglo Irish Bank had resigned. So we removed Anglo Irish Bank's Fixed Rate Bond from the one of 'best of the bunch' tables in this article.
That said, I do not think savers in Anglo Irish Bank should lose sleep. In my view, the most likely outcome now is that the bank will be nationalised by the Irish government. However things turn out, I'm confident that UK savers in Anglo Irish Bank won't lose any money.