Money Insider: Rates may be low but don't give up the savings habit

 

It is more than three years since the Monetary Policy Committee slashed base rate to 0.50 per cent to try and get the UK economy moving again, but it appears we have made little headway in that time and now find ourselves back in recession.

Unfortunately there is no sign that the situation will improve for savers who continue to suffer from a double whammy of rock-bottom interest rates and above-target 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 anytime soon. In fact, many experts are predicting that interest rates won't pick up for at least another 18 months, and as for inflation, the recent sharp rises in fuel prices are likely to keep CPI well above the official 2 per cent target for much of 2012.

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 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'll be in a better position to benefit. In the meantime, keep a check on interest rates and at least try to get the best return you can.

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 best-buy deals.

There are still 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 is time to take some swift action and move it elsewhere as you can easily earn 30 times as much.

If you want instant access to your savings, you can get 3.15 per cent with Coventry Building Society and 3.1 per cent from ING Direct.

Both of these accounts include an introductory bonus for the first 12 months so you'll need to switch again this time next year, but at least you're be getting a best-buy rate on your money in the meantime.

If you can manage without access to some of your cash then it is possible to earn a fixed rate of 3.5 per cent for a year with Tesco Bank or 3.85 per cent for two years with Scottish Building Society.

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.

Don't let PPI fiasco put you off new protection insurance

It's not surprising that people are avoiding protection cover in the wake of the PPI debacle, but ask yourself: "If I was unable to work for the next six months, could I continue to pay the household bills?" If the answer is no, then income protection could be a financial lifesaver.

The new protection policies are very different and offer much greater flexibility and choice than the mis-sold PPI.

With the old-style policies, you had to pay the full premium up front. It was added to your loan and you were charged interest on it.

With the new standalone policies, premiums are payable monthly, so you can cancel at any time without financial penalty. It means you can tailor the cover so you only pay for what you need or can afford.

They are a useful way to protect yourself and your family, without costing a fortune.

Andrew Hagger – Moneynet.co.uk

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