Money Insider: Savers should switch to make best of rock-bottom rates
Saturday 21 August 2010
Yet another month passes and there's still no light at the end of the tunnel for savers who continue to suffer at the hands of rock-bottom interest rates and niggling inflation.
With annual inflation (CPI) down just 0.1 per cent to 3.1 per cent in July, a basic rate taxpayer needs to earn 3.875 per cent before tax to sustain the value of their savings.
Despite protestations from MP's and petitions and campaigns from consumer groups, the grim reality is that this situation isn't going to improve anytime soon. It was back in March 2009 that base rate hit 0.5 per cent and, almost 18 months on, there's no sign of it picking up, with many analysts confidently predicting no change until spring 2011 at the earliest.
So what should you do? It depends on your situation, 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.
Whilst the icing on the cake – your interest – may be a little thin, 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 try to get the best return you can during these testing times.
If you're not 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 banks or building societies. There are hundreds of savings accounts paying less than 0.2 per cent and if your money is sitting in one of these then it's time to take some swift action and move it elsewhere as you can easily earn 10 to 15 times as much.
If you want instant access to your savings, you can get 2.80 per cent with AA savings, 2.75 per cent with Birmingham Midshires and Santander, and 2.70 per cent from Sainsbury's Finance. All of these 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 getting a "best buy" rate in the meantime. If you can lock your cash away then it's possible to earn 3.10 per cent for one year with ICICI Bank UK or 3.70 per cent for two years with Coventry Building Society.
There are even higher returns 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 their cash up until 2015. However this week we saw the launch of a new stepped rate savings bond from State Bank of India, which is likely to prove very popular due to a combination of good rates and flexibility. It pays 3.25 per cent in year one, 4 per cent in year two, 4.5 per cent in the third year, 5 per cent in the fourth and 5.75 per cent in the final year.
The big plus point with this account is that savers are able to withdraw their money in full after two years, without any penalties or loss of interest. So if the Bank of England rate rises and savings rates improve, savers are free to exit the bond after two, three or four years and switch to a better account elsewhere.
Post Office offers reduced mortgage rates
the post Office reduced rates across its mortgage range last week and launched an attractive 2.85 per cent fix for two years up to 65 per cent LTV.
Whilst the rate is excellent, the large arrangement fee of £1,495 means that, in some cases, it will prove more expensive than competitor products charging a higher rate of interest.
For example on a £150,000 advance, the 2.99 per cent fix (to 75 per cent LTV) from Yorkshire Building Society with a £495 fee works out £739.12 cheaper over the two-year term. This highlights the importance of establishing the total cost of your mortgage and not being swayed by headline interest rates. Arrangement fees can vary dramatically between providers and the shorter the term of your mortgage, the more impact these fees will have.
Away from fixed rates, HSBC this week announced that it was extending the original two-week deal for its 2.19 per cent tracker mortgage with a £99 booking fee. The lifetime tracker, currently the lowest in the market, could be withdrawn at anytime, but will definitely be gone by 5 September.
Independent Partners; request a free guide on NISAs from Hargreaves Lansdown
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
New era of cheap oil 'will destroy green revolution'
Ukip founder Alan Sked and Nigel Farage 'begged Enoch Powell to stand as a candidate'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
iJobs Money & Business
£32000 - £35000 per annum + benefits: Ashdown Group: Marketing Services Manage...
£Neg. (DOE) + Excellent Benefits: Guru Careers: A Finance Account Manager with...
£40000 - £470000 per annum + bonus: Ashdown Group: Java Developer / J2EE Devel...
£45000 - £55000 per annum + Benefits: Ashdown Group: An exciting opportunity h...
Day In a Page
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens