Money Insider: Rates may be low but don't give up saving

Another month passes and, yet again, the Bank of England's Monetary Policy Committee decides that it is best for all of us if it does not tinker with interest rates. Even though it is almost two-and-a-half years since it decided to take drastic action and slash the base rate to 0.50 per cent, there is no hint that the situation will improve for savers who continue to suffer at the hands of rock-bottom rates and stubborn inflation.

With annual Consumer Price Inflation running at 4.2 per cent, a basic rate taxpayer needs to earn 5.25 per cent before tax to maintain the real value of their savings, which is an impossible task. Despite protestations from MPs and petitions and campaigns by consumer groups, the grim reality is that this situation is not going to improve soon. In fact, many experts are predicting that interest rates will not pick up for at least another 12 months. As for inflation, the recent savage increases in gas and electricity prices are likely to send CPI above the 5 per cent mark before it starts to subside.

So if you are a saver, what should you do? It depends on your personal circumstances, but if you are building a savings pot by putting money aside on a weekly or monthly basis, then unless you have 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 a little thin at the moment, at least your capital will continue to grow and when interest rates eventually pick up, you will be in a better position to benefit. In the meantime, keep a close eye on interest rates and at least try to get the best return you can during these testing times.

If you are no longer in a position to add to your savings and are relying on them to supplement your income, it is still worth checking the rates on offer and switching your money to squeeze the most you can from the banks or building societies.

There are hundreds of savings accounts paying 0.1 per cent or less. If your money is sitting in one of these duff accounts, then it is time to take some swift action and move it elsewhere, because you can easily earn 20 to 30 times as much.

If you want instant access to your savings, you can get 3.15 per cent with Coventry Building Society, 3.11 per cent with Derbyshire BS and 3.10 per cent from ING Direct. These accounts include an introductory bonus for the first 12 months, so you will need to switch again this time next year, but at least you are getting a best-buy rate on your cash in the meantime.

If you can manage without access to some of your cash, then it is possible to earn a fixed rate of 3.52 per cent for 1 year with Aldermore or 3.96 per cent for two years with a bond from Post Office. There are even higher returns of up to 4.75 per cent on offer for those who are able to put their money into a five-year bond. However, I appreciate that people may be concerned with having to tie up their cash until 2016.

One of the best-looking bonds available at the moment is the Three-Year Step (Issue 2) from Cheltenham & Gloucester. Under the terms of this deal, you will earn 3.75 per cent in the first year, 4.25 per cent in the second and 4.75 per cent in the third and final year. The rates easily beat the current best buys over one, two and three years, so this limited issue account will be very popular. The minimum deposit is £500, can be opened in branch or by post and also offers the choice of annual or monthly interest.

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.

Mortgage rates still tumbling as fixed deals reach historic lows

with swap rates continuing to slide, it was no surprise to see more lenders reducing the rates on their fixed-rate mortgages this week. The best new deals came from Nationwide Building Society as it trimmed 0.25 per cent off all two-year fixed mortgages and 0.50 per cent off its range of three-year products. The message over the past few months has been to opt for a variable or tracker-rate mortgage, but with fixed deals now reaching historic lows, the decision is less clear cut.

For people looking for a combination of a low rate and security of fixed repayments, the Nationwide deals at 2.64 per cent for two years (£999 fee) to 70 per cent loan to value (LTV) and three years at 2.89 per cent (£999 fee) to 60 per cent LTV are both among the pace-setters in the current best buys.

Andrew Hagger is an 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

PROMOTED VIDEO
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

    Ashdown Group: Market Research Executive

    £23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

    Recruitment Genius: Technical Report Writer

    £25000 - £35000 per annum: Recruitment Genius: A Technical Report Writer is re...

    MBDA UK Ltd: Indirect Procurement Category Manager

    Competitive salary & benefits!: MBDA UK Ltd: MBDA UK LTD Indirect Procurement...

    Recruitment Genius: Web Developer - PHP

    £16500 - £16640 per annum: Recruitment Genius: This fast growing Finance compa...

    Day In a Page

    Greece elections: In times like these, the EU has far more dangerous adversaries than Syriza

    Greece elections

    In times like these, the EU has far more dangerous adversaries than Syriza, says Patrick Cockburn
    Holocaust Memorial Day: Nazi victims remembered as spectre of prejudice reappears

    Holocaust Memorial Day

    Nazi victims remembered as spectre of prejudice reappears over Europe
    Fortitude and the Arctic attraction: Our fascination with the last great wilderness

    Magnetic north

    The Arctic has always exerted a pull, from Greek myth to new thriller Fortitude. Gerard Gilbert considers what's behind our fascination with the last great wilderness
    Homeless Veterans appeal: Homeless in Wales can find inspiration from Daniel’s story

    Homeless Veterans appeal

    Homeless in Wales can find inspiration from Daniel’s story
    Front National family feud? Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks

    Front National family feud?

    Marine Le Pen and her relatives clash over French far-right party's response to Paris terror attacks
    Pot of gold: tasting the world’s most expensive tea

    Pot of gold

    Tasting the world’s most expensive tea
    10 best wildlife-watching experiences: From hen harriers to porpoises

    From hen harriers to porpoises: 10 best wildlife-watching experiences

    While many of Britain's birds have flown south for the winter, it's still a great time to get outside for a spot of twitching
    Nick Easter: 'I don’t want just to hold tackle bags, I want to be out there'

    'I don’t want just to hold tackle bags, I want to be out there'

    Nick Easter targeting World Cup place after England recall
    DSK, Dodo the Pimp, and the Carlton Hotel

    The inside track on France's trial of the year

    Dominique Strauss-Kahn, Dodo the Pimp, and the Carlton Hotel:
    As provocative now as they ever were

    Sarah Kane season

    Why her plays are as provocative now as when they were written
    Murder of Japanese hostage has grim echoes of a killing in Iraq 11 years ago

    Murder of Japanese hostage has grim echoes of another killing

    Japanese mood was against what was seen as irresponsible trips to a vicious war zone
    Syria crisis: Celebrities call on David Cameron to take more refugees as one young mother tells of torture by Assad regime

    Celebrities call on David Cameron to take more Syrian refugees

    One young mother tells of torture by Assad regime
    The enemy within: People who hear voices in their heads are being encouraged to talk back – with promising results

    The enemy within

    People who hear voices in their heads are being encouraged to talk back
    'In Auschwitz you got used to anything'

    'In Auschwitz you got used to anything'

    Survivors of the Nazi concentration camp remember its horror, 70 years on
    Autumn/winter menswear 2015: The uniforms that make up modern life come to the fore

    Autumn/winter menswear 2015

    The uniforms that make up modern life come to the fore