Money: Savers get back to the good times
Sunday 16 November 1997
The last time 8 per cent was available on savings accounts other than tax-free Tessas or special fixed-rate bonds was 1992, which is also the last time base interest rates, at 7.25 per cent, were this high.
Northern Rock presently stands alone among high street banks and building societies in paying more than 8 per cent on a mainstream savings account, albeit on very high balances. Select 90, its 90-day notice account, now pays 8.05 per cent before tax on pounds 100,000 or more. Select 90 rates start at 7.75 per cent on pounds 10,000, which is still highly competitive.
Another account effectively paying 8 per cent, but on just pounds 5,000 and without any notice period, is being promoted by the David Aaron Partnership, an independent financial adviser based in Milton Keynes. Called the Flexible Access Bond (FAB), it works like a normal postal account and is run by GE Financial Assurance, part of GE Capital, a huge US conglomerate. The 6.1 per cent net interest rate paid by the FAB account, if bought through David Aaron, is equivalent to a gross rate of 7.9 per cent for a basic- rate taxpayer or 8.4 per cent for a higher-rate taxpayer; for the latter, this beats even Northern Rock's rate.
The difference in the gross rates on the FAB account reflects a quirk in life insurance taxation, and the effective rate is also boosted because the IFA rebates part of its commission.
The only "catch", says the company, is that non-taxpayers cannot reclaim the tax on the interest, and so would be better off elsewhere. GE is not a mutual so there is no prospect of a windfall, but in simple interest- rate terms just about any taxpayer would stand to benefit, and all savers are protected by the Policyholders' Protection Act, which is an even stronger safety net than that protecting bank and building society savers.
At present, it is virtually impossible to find any other accounts paying 8 per cent, although the combination of further base-rate rises and ever intensifying competition could change this. More institutions are likely to enter the savings market in the new year, including Standard Life, the insurer.
However Ian Millward, investment marketing manager at Chase de Vere, a major firm of financial advisers based in Bath, said he doubted that 8 per cent would become widely available and said rates were probably approaching their peak.
Legal & General, one of the insurers already already offering savings accounts through its banking arm, is one of the few institutions to have increased its rates since the latest base-rate rise. It now pays 7.15 per cent on pounds 2,500 in its Direct Access postal account, or 7.65 per cent for money on 60 days' notice.
Among the main lenders, only Abbey National and Northern Rock have increased their mortgage rates so far to take account of the latest base-rate rise, and until more lenders move, savers are unlikely to see rates rise across the board.
Nationwide, the biggest remaining society, is holding its base mortgage rate of 8.1 per cent until the new year (which compares with the 8.7 per cent now being charged by Abbey and Northern Rock), and says that in the meantime it has no plans to touch its savings rates. The society already offers 7.5 per cent to people who are prepared to save as little as pounds 20 a month. New savers must agree to assign their rights to any future windfall to charity, although there is a question mark over whether this condition would survive a legal challenge.
Elsewhere, Tesco continues to offer 6.5 per cent on as little as pounds 1, and if you open an account this year and keep at least pounds 500 in it for the first three months, you will also get a bonus of 1,000 Clubcard points. The points are worth pounds 10 of shopping at Tesco and are equivalent to an extra 2 per cent return on a balance of pounds 500.
For our best savings rates table, see page 12. The David Aaron Partnership; tel: 01908 281544; Legal & General Bank; 0500 111200: Tesco Savings; 0345 10 40 10.
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