The base rate looks like it's going down this Thursday, but act quickly, and you could still bag an account guaranteed to pay more than 5% for the next year.
So, 2009 is well underway, and after the indulgences of Christmas, many of us will be opening those bank and credit card statements to assess the financial damage.
But as well as the post-Christmas financial worries, many of us have high hopes for 2009. According to research by the Association of British Insurers, almost half of us (47%) have made it our New Year's resolution to save more.
So, if saving is your financial priority of 2009, where should you be stashing that cash?
Financial bonding
With interest rates in decline, savers should definitely be trying to fix.
However, with the next base rate decision this Thursday, you'd better be quick if you want to get a good deal. If the base rate drops again as predicted, rates on fixed rate bonds will soon follow.
So, here are the top-paying bonds at the moment:
Provider and Account | Interest Rate | Minimum Balance | Bond Term |
|---|---|---|---|
5.1% | £1,000 | One year | |
5% | £500 | One year | |
Cheshire Building Society Two Year Fixed Rate Bond | 4.75% | £1,000 | Two years |
Considering the Bank of England base rate currently stands at 2%, there are still some pretty attractive rates to be had, with top pick ICICI's HiSAVE fixed rate bond paying a tempting 5.1% on balances over £1,000.
But for all those tempted by ICICI, there are others asking one vital question:
How safe is it?
India's second largest bank in terms of assets has come under great scrutiny since last October's banking crisis. Rumours ran rife about the stability of ICICI, so much so that it prompted the bank to advertise its `strong capital adequacy' and `high liquidity`on its website.
Credit default swaps (CDSs) in the bank, which measure the market's view on ICICI's solvency, rocketed well above 1,500 leading some savers and investors and savers to shun ICICI and look elsewhere. (CDSs in HSBC were trading around the 80 mark.)
However, recent developments have eased many of the worries of last year, with global cash injections and recent rate cuts by India's Central Bank easing many of the liquidity woes which plagued them last year. CDSs in ICICI have fallen almost two-thirds since October, and now stand at 600 basis points and falling.
It's also worth remembering that ICICI Bank UK PLC is covered under the Financial Services Compensation Scheme (FSCS), where deposits of up to £50,000 are guaranteed for sole accounts, and £100,000 for joint.
If you don't fancy ICICI, Anglo Irish bank, which itself recently received a cash injection from the Irish government is another contender, and pays 5% on its fixed rate bond on balances from £500.
Alternatively, high rollers can get a rate of 5% with the Close Brothers Premium Gold 2 account - as long as you have a minimum investment of £10,000. The bond term lasts for two years, and closes on 13th January, so again you'll have to be quick (and just in case you were wondering, Close Brothers is a member of the FSCS).
Shorter term solutions
If you'd prefer not to tie your money up in a bond, you could always opt for an instant access account instead. Here are the top five accounts at the moment:
Account and Provider | Interest Rate (AER) | Minimum Balance | Other |
|---|---|---|---|
Tesco Internet Saver | 6% (falling to 5.1% on 8/1/09) | £1 | Rate includes a 1.5% bonus payable for 12 months. |
5% | £1 | Rate includes a 2.17% bonus, payable for 12 months | |
Anglo Irish Bank Easy Access Deposit Issue 2 | 4.55% | £1 | Free CHAPS transfers to a nominated bank account. |
4.5% | £1 | Rate guaranteed to be 0.30% above Bank of England base rate until | |
Egg Savings Account | 4% | £1 | Rate includes a 2% bonus, payable for 12 months. |
As far as instant access accounts are concerned, there are still some cracking deals if you know where to look.
Top of the picks is Tesco, which has received unprecedented demand for its market leading Internet Saver. The account currently pays 6%, but this will drop to 5.1% from 8th January.
In addition, customers who open an account after this date are not guaranteed this new rate, as Tesco says it is also reviewing the 1.5% bonus it currently offers with the account.
The supermarket promises to honour the bonus rate on all account applications submitted on or before 7th January, so if you want to be guaranteed the bonus rate, you'd better hurry! Alternatively, runner-up ING Direct is offering 5% to new customers, including a 2.17% bonus for 12 months.
Along with all your efforts, you must also remember that if the base rate does fall on Thursday, these variable rates will probably fall soon after.
Unlike fixed rates, providers can slash them at any time, so if you take the instant access route, be sure to keep an eye on your account to make sure you're still getting a competitive rate.
Happy saving!