Savers urged to lock in now to high-rate deals
Savers who are prepared to move their money can beat falling returns following last month’s base rate cut thanks to continuing competition for deposits.
Cash investors can still find accounts paying up to 6.5 per cent, in spite of base rates having come down to 5 per cent. And with fixed-rate deals having broken through the 7 per cent watershed again, they can also lock in to even higher returns that will protect against further reductions.
Most savings rates dropped by a quarter of a percentage point from this week, reflecting the Bank of England’s third rate cut since December. But even though the benchmark rate has come down by 0.75 per cent, institutions’ hunger for retail funding means savers can still find rates as high as at any time since the credit squeeze took hold last year.
David Black, principal banking consultant at analysts Defaqto, said: “If you’re prepared to move your cash, the base rate cuts have been irrelevant.”
Kevin Mountford, head of savings at Moneysupermarket.com, the comparison service, added: “It’s great news if you’re an active saver. He said the “gap between the best and the rest is as high as ever”, with the average best-buy account now paying a 1.42 per cent premium to base rates.
Black added that fixed-rate bonds, offering returns of up to 2 per cent over base rate as well as security against further rate cuts, represented “exceptional value”.
While a few top-paying accounts have not been hit at all following the latest base rate move, banks and building societies continue to launch new deals while cutting existing accounts and older “back book” rates.
Rachel Thrussell, head of savings at Moneyfacts, the rate monitor, explained: “By bringing out new products, they don’t have to pay the high rate on all balances.”
This week saw a one-year bond paying 7.01 per cent launched by Icesave, owned by the Icelandic Landsbanki. Heritable Bank, part of the same group, brought out a 60-day notice account paying 6.5 per cent, while Abbey has a new phone and branch-based Instant Access account paying 6.5 per cent.
With the prospect of more base rate cuts this year – possibly even as soon this Thursday after the Bank’s monthly meeting – many experts advise locking into high fixed rates while they are available.
The best-paying tie in savers for only up to a year. Apart from Icesave’s 7.01 per cent, National Counties building society is offering 6.82 per cent on a six-month bond, while Birmingham Midshires has a one-year deal at 6.81 per cent.
The Bank’s suggestion this week that the worst of the credit crisis is over should also spur savers to take advantage of high rates while they can, say experts.
Ray Boulger, senior technical manager at John Charcol mortgage brokers, said funding pressures should start to ease for banks and societies in coming months, resulting in knock-on reductions in the savings rates they would be prepared to offer.
Source: FT