Money Insider: Fixed rate bonds on the up, but young savers are getting raw deal

The mutual sector kept up the pressure on the fixed rate savings market this week with improved two- and three-year fixed rates courtesy of Principality Building Society and Yorkshire Building Society's Barnsley brand respectively.

Principality increased its rate by a quarter of a point to 4.25 per cent AER and is just 0.1 per cent off the top spot for a two-year bond, currently occupied by AA Financial Services. Barnsley BS now sits on pole position in the three-year bond market with its online account paying 4.8 per cent AER.

While competition has been keeping rates high in this sector of the savings market, the same can't be said for children's savings accounts. Moneynet.co.uk research has revealed that the average interest rate on an easy access children's account is a miserly 0.98 per cent, with almost two out of five of accounts paying just 0.5 per cent or less.

If we want our children to grow up with some savings behind them and to appreciate the value of money rather than reach for the plastic, providers need to offer better rates and incentives. Offering a paltry £10 interest per year on a £1,000 savings balance isn't the way to get the younger generation visiting their bank on a regular basis.

As with the adult savings market the highest rates are offered for regular savings accounts. The terms and conditions of this type of account tend to discourage withdrawals but help to instil the discipline of saving regularly, with the carrot of fixed rates as high as 5 per cent from Principality BS and 6 per cent from Halifax payable for those who can salt away at least £10 per month for 12 months.

There are only half a dozen providers offering regular savings accounts for children, a sector that is crying out for more innovation and competition.

Mortgage rates and LTV demands edging lower

There were further signs this week that mortgage lenders are starting to feel more confident as Woolwich trimmed rates on fixed and tracker products, but more importantly, also increased its maximum loan-to-value to 75 per cent, the first time they have been prepared to lend up to this level since last autumn.

The new 75 per cent LTV range includes two-year fixed rates at 3.99 per cent with £999 fee or 4.09 per cent with a lower £499 fee, and lifetime trackers at 2.94 per cent (base rate +2.44 per cent) with £999 fee or a no-fee option at 3.34 per cent.

Leeds Building Society unveiled two keenly priced loans for those seeking the longer term stability of a five-year fixed rate. The rate up to 75 per cent LTV is 4.99 per cent fixed with £999 fees and for an 85 per cent LTV loan, a market-leading 5.75 per cent fixed with £999 fees.

Whether it's a tracker or variable rate, we are starting to see increased competition and a revitalised mortgage market driving down the cost of borrowing. While there is likely to be plenty of interest in these latest deals, there are also many borrowers enjoying standard variable rates of sub 4 per cent who will sit tight until we see further cost reductions.

We're losing the savings habit

I was alarmed to read that 28 per cent of parents have no savings and a further 20 per cent have less than £1,000 to fall back on, according to research from Abbey.

With unemployment at a 14-year high and interest rates on savings accounts at rock bottom, it's no surprise that parents are saving less. However, putting a little cash aside each month, rather than continually reaching for the plastic, is a habit that households need to rediscover.

Unless you make a conscious effort to start saving it's one of those things that's too easy to put off.

While there are some good rates paying more than 5 per cent for fixed rate savings accounts, these are no good to someone looking to start their first nest egg. With many instant access savings accounts paying just 1 per cent or lower, there's no incentive to put money into this type of account either.

The solution for newbie savers is a "Regular Saver" account where you commit to saving a specified amount every month for 12 months and are rewarded with a worthwhile rate of interest.

Terms and conditions are quite stringent, and withdrawals rarely permitted, but rates are good, with Norwich & Peterborough BS paying 5 per cent AER, Stroud & Swindon BS and Principality BS both 4.5 per cent AER, and Barclays at 4.25 per cent AER.

Andrew Hagger is a money analyst at Moneynet.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Life and Style
love + sex A new study has revealed the average size - but does that leave men outside the 'normal' range being thought of as 'abnormal'?
Arts and Entertainment
TV
Voices
The Palace of Westminster is falling down, according to John Bercow
voices..says Matthew Norman
Sport
Steve Bruce and Gus Poyet clash
football
News
Graham Norton said Irish broadcaster RTE’s decision to settle was ‘moronic’
TV
Arts and Entertainment
Jake and Dinos Chapman were motivated by revenge to make 'Bring me the Head of Franco Toselli! '
arts + ents Shapero Modern Gallery to show explicit Chapman Brothers film
Arts and Entertainment
Kurt Cobain performing for 'MTV Unplugged' in New York, shortly before his death
music Brett Morgen's 'Cobain: Montage of Heck' debunks many of the myths
Life and Style
life
Sport
Brendan Rodgers
football The Liverpool manager will be the first option after Pep Guardiola
News
Amazon misled consumers about subscription fees, the ASA has ruled
news
Arts and Entertainment
Myanna Buring, Julian Rhind-Tutt and Russell Tovey in 'Banished'
TV Jimmy McGovern tackles 18th-century crime and punishment
Arts and Entertainment
Paul Whitehouse as Herbert
arts + ents
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive - OTE £40,000

    £15000 - £18000 per annum: Recruitment Genius: This is a great opportunity for...

    Austen Lloyd: Law Costs HOD - Southampton

    £50000 - £60000 per annum + Excellent Salary: Austen Lloyd: An outstanding new...

    SThree: Recruitment Resourcer

    £20000 - £21000 per annum + uncapped commission: SThree: As a graduate you are...

    Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

    £25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

    Day In a Page

    Syrian conflict is the world's first 'climate change war', say scientists, but it won't be the last one

    Climate change key in Syrian conflict

    And it will trigger more war in future
    How I outwitted the Gestapo

    How I outwitted the Gestapo

    My life as a Jew in wartime Berlin
    The nation's favourite animal revealed

    The nation's favourite animal revealed

    Women like cuddly creatures whilst men like creepy-crawlies
    Is this the way to get young people to vote?

    Getting young people to vote

    From #VOTESELFISH to Bite the Ballot
    Poldark star Heida Reed: 'I don't think a single bodice gets ripped'

    Poldark star Heida Reed

    'I don't think a single bodice gets ripped'
    The difference between America and Israel? There isn’t one

    The difference between America and Israel? There isn’t one

    Netanyahu knows he can get away with anything in America, says Robert Fisk
    Families clubbing together to build their own affordable accommodation

    Do It Yourself approach to securing a new house

    Community land trusts marking a new trend for taking the initiative away from developers
    Head of WWF UK: We didn’t send Cameron to the Arctic to see green ideas freeze

    David Nussbaum: We didn’t send Cameron to the Arctic to see green ideas freeze

    The head of WWF UK remains sanguine despite the Government’s failure to live up to its pledges on the environment
    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Author Kazuo Ishiguro on being inspired by shoot-outs and samurai

    Set in a mythologised 5th-century Britain, ‘The Buried Giant’ is a strange beast
    With money, corruption and drugs, this monk fears Buddhism in Thailand is a ‘poisoned fruit’

    Money, corruption and drugs

    The monk who fears Buddhism in Thailand is a ‘poisoned fruit’
    America's first slavery museum established at Django Unchained plantation - 150 years after slavery outlawed

    150 years after it was outlawed...

    ... America's first slavery museum is established in Louisiana
    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    Kelly Clarkson: How I snubbed Simon Cowell and become a Grammy-winning superstar

    The first 'American Idol' winner on how she manages to remain her own woman – Jane Austen fascination and all
    Tony Oursler on exploring our uneasy relationship with technology with his new show

    You won't believe your eyes

    Tony Oursler's new show explores our uneasy relationship with technology. He's one of a growing number of artists with that preoccupation
    Ian Herbert: Peter Moores must go. He should never have been brought back to fail again

    Moores must go. He should never have been brought back to fail again

    The England coach leaves players to find solutions - which makes you wonder where he adds value, says Ian Herbert
    War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

    The battle for Mosul will unleash 'a million refugees'

    Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn