It's better to save a little than nothing at all
With interest rates low, and set to stay that way, Chiara Cavaglieri investigates the best ways for savers to maximise their returns
Sunday 10 January 2010
With the Bank of England once again deciding to keep the base rate at the historic low of 0.5 per cent, as expected, now may not seem like the best time for savers to put their money aside. To make matters worse, many of the best fixed-rate savings returns have dwindled in the past few months, leaving savers with fewer options.
The average rate for a one-year fixed savings account in October, for instance, was 3.23 per cent, according to Moneyfacts. For January that average stands at just 3.07 per cent. In the same period, the average rate for a five-year fixed account has fallen from 4.77 per cent to 4.56 per cent.
"Unfortunately, there seems little light at the end of the tunnel for savers. Interest rates are likely to remain at these low levels for at least six months and even if they were to double or quadruple from where they are now, saving rates would still be low," says Danny Cox, from independent financial adviser Hargreaves Lansdown.
Long-term fixed accounts do still offer the best savings rates on the market, but these require savers to lock away their money for up to five years. State Bank of India tops the best-buy tables with a five-year bond at 5.25 per cent but this is for deposits over £10,000 (Halifax pays 5.15 per cent on deposits over £500). For medium-term accounts, ICICI Bank UK is top with a rate of 4.7 per cent, fixed for three years, but if the base rate goes up as quickly as it went down then these offers will become uncompetitive in double-quick time.
"For fixed-term bonds, don't tie your money up for more than 12 months. There are many three, four and five-year fixed term bonds with attractive headline rates. However, It is important to be flexible. Interest rates could be completely different in 12 months' time," says Mr Cox.
Against this backdrop, what are the best deals out there?
The first port of call for any saver is to make the most of the individual savings account (ISA) allowance and the tax breaks these offer.
For an instant-access cash ISA, Standard Life is offering the top rate at 2.65 per cent on deposits from just £1. This account allows holders to transfer money from previous years' ISAs and allows withdrawals without notice or penalty. For a fixed-rate ISA, Halifax pays 3.5 per cent on deposits of at least £500. Cheltenham & Gloucester pays 3.5 per cent for a two-year fixed ISA, but only requires a deposit of £100.
"My advice would be for people to consider moving money into a shares ISA and ideally a tracker fund. People should be using their ISA allowance to support their pension planning and should therefore be investing in equities rather than cash over the long term," says Jasmine Birtles, the founder of financial website Moneymagpie.com.
Right now, anyone aged 50, or older, can invest £5,100 in a cash ISA this tax year, while everyone else can only invest £3,600 until the increased ISA allowance kicks in for everyone else when the new tax year starts in April.
Otherwise, there are some competitive variable rate accounts such as the 30-Day Postal Saver from Cheshire Building Society, which pays 3.25 per cent with a minimum deposit of £1,000. But the rate does include a 1 per cent bonus for 12 months, so it would be wise to shop around again once the bonus falls away. For smaller deposits, Saffron Building Society tops the internet chart with a rate of 2.85 per cent.
Regular savers are also a good option for anyone building up their first savings pot. These have relatively strict terms and conditions, requiring the discipline to save on a monthly basis. Principality Building Society has a regular saver paying 4.5 per cent on monthly deposits of between £20 and £500. This rate is fixed for one year and doesn't allow early access or withdrawals. For a less restrictive account, Barclays pays slightly less at 4.25 per cent for its fixed-rate regular saver. This account requires deposits of between £20 and £250 per month and withdrawals are allowed. However, the rate drops to a still decent 3.03 per cent in any month that a withdrawal has been made.
"Anything that encourages you to put money aside regularly has to be a good thing," says Ms Birtles. "If it helps you to be more disciplined and build up a savings pot it's worth looking into – even if the amount is small and the interest rate isn't the best around."
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 2 The secret report that helps Israel hide facts
- 3 Is Ebola coming to Britain? UK health officials issue warning to doctors as outbreak fears grow
- 4 Richard Dawkins says 'date rape is bad, stranger rape is worse' on Twitter
- 5 Danish TV reporter is all business up top, all party down below
The secret report that helps Israel hide facts
A day in the life of Vladimir Putin: The dictator in his labyrinth
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
Boozy, ignorant, intolerant, but very polite – Britain as others see us
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
- < Previous
- Next >
iJobs Money & Business
£350 - £400 per annum + competitive: Orgtel: Project Manager (specializing in ...
£25000 per annum + OTE £40,000: SThree: Orgtel are seeking Graduate Trainee Re...
£45000 per annum + Benefits: Ashdown Group: ** HR Business Partner - Senior H...
£28000 - £32000 per annum + Benefits: Ashdown Group: PA / Team Secretary - Mat...
Day In a Page
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000