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