Money Insider: It's grim, but don't give up savings habit

 

It's almost four years since the Monetary Policy Committee slashed its base rate to 0.5 per cent to try to get the UK economy moving, but it feels as if we've made little headway since then and still find ourselves teetering on the edge of recession.

Unfortunately there's no sign that the situation will improve for savers, who continue to suffer from a double whammy of extremely poor interest rates and niggling inflation.

Despite protestations from MPs and petitions and campaigns from consumer groups, the grim reality is that this situation isn't going to get better any time soon. In fact many experts are predicting that interest rates won't pick up for at least another 12 months, and as for inflation, the continuing rise in fuel prices is likely to keep CPI well above the official 2 per cent target for much of 2013.

So if you're a saver, what should you do? It depends on your personal circumstances, but if you're building a savings pot by putting money aside on a weekly or monthly basis, then unless you've got some expensive credit card or overdraft debt to clear, the message is to carry on saving.

While the icing on the cake, your interest, may be so thin as to seem transparent at the moment, at least your capital will continue to grow and when interest rates eventually pick up, you'll be in a better position to benefit. In the meantime, keep a check on competing interest rates and at least try to get the best return you can.

If you're no longer in a position to add to your savings and are relying on them to supplement your income, it's still worth checking the rates on offer and switching your money to squeeze the most you can from the best buy deals. There are dozens of savings accounts paying 0.1 per cent or less and if your money is sitting in one of these duff deals then it's time to ditch and switch, as you can easily earn 20 times as much.

If you want instant access to your savings, you can get 2 per cent with Coventry Building Society and Nationwide Building Society. Both include a bonus rate for the first 12 months, so you'll need to look at moving your cash again this time next year.

If you can manage without access to some of your cash then it's possible to earn a fixed 2.45 per cent for two years courtesy of Sainsbury's Bank.

And no matter how low rates are, don't give up on the savings habit – it will always be a smart financial strategy to put some money aside each month.

Chance to take a 10-year view of your mortgage

Although there are hundreds of fixed-rate mortgages to choose from with terms of two, three or five years, the market for longer-term products is much smaller.

Currently only a handful of lenders are offering the chance to fix rates for the next ten years, and in many cases the deals look over priced.

This week Norwich & Peterborough, part of Yorkshire Building Society, became the only lender advertising a ten-year fix priced below 4 per cent.

With the Funding for Lending scheme driving down the cost of mortgage borrowing, it was only a matter of time before more competitive niche products started to appear.

For those looking for some long-term peace of mind, 3.99 per cent with a £295 fee will prove very tempting.

For a five-year fix there are rates a full 1 percentage point cheaper, and two-year deals are cheaper still, but some people may still prefer the longer-term option as there's no guarantee that current low-rate deals will still be around even in 12 months' time.

Although the N&P mortgage can be ported if you move home, the potential downside of a ten-year "lock in" is that the early repayment fees are high. In normal circumstances this isn't an issue, but if a situation arises where the mortgage needs to be redeemed early – as a result of a marital break-up for example – the get-out fee is a hefty 7 per cent of the balance in the first three years and 6 per cent in years four and five.

Many other borrowers will feel that 10 years is simply too long. However, when Norwich & Peterborough launched a similar product last year, it was snapped up and sold out within a couple of months, and it expects a similar response this time, particularly as it is sitting at the top of the best buy tables.

Andrew Hagger is an independent personal finance analyst at www.moneycomms.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

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