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.
Compare with the Independent: See how much you could save by switching credit cards. Compare now
easyJet founder Sir Stelios Haji-Ioannou aims to make buying a home easier
Life expectancy calculator will allow people to plan ahead but needs to be handled carefully
Do alternative savings offer happy returns?
How to start your own internet business
The housing market is overheating and it's time to cool off
- 1 Disabled people are trapped in assessment 'nightmare' by PIP benefits regime, says Dr Stephen Duckworth
- 2 A bottle of wine a day is not bad for you and abstaining is worse than drinking, scientist claims
- 3 Queen turns 88: David Bailey captures another side of the Queen in birthday portrait
- 4 Loch Ness Monster found on Apple Maps?
- 5 Criminals ‘using unmanned drones and infrared cameras to find illegal cannabis farms’ – and then steal from the growers
The food poverty scandal that shames Britain: Nearly 1m people rely on handouts to eat – and benefit reforms may be to blame
Scottish independence: It is the English who should be on their knees, begging the Scots to vote ‘No’
'Sinful': Video of British Muslims dancing to Pharrell Williams's hit Happy comes under attack
Nigel Farage: I’m taking on the status quo, and the Establishment’s fighting back
An open letter to Nigel Farage: you may smile, but I am not seduced
Abdullah Deghayes: My son was the martyr of a just cause, says father of British teenager killed in Syria conflict
iJobs Money & Business
Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...
£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...
£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...
£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...
Day In a Page
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
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar
A newly refurbished one-bedroom flat in the heart of Mayfair, close to Grosvenor Square
A charming four-bedroom house overlooking Burleigh Square Park, close to Thorpe Bay
A three-bedroom farmhouse with a large inglenook fireplace and exposed beams
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds