Cash in on rising interest rates
SWITCH YOUR SAVINGS TO MAKE THE MOST OF YOUR MONEY, SUGGESTS HARVEY JONES
Your Money
AFTER years in the doldrums, rising interest rates are finally giving savers something to smile about – but you may have to switch banks to cash in.
While best buy savings rates are heading towards 3%, and one current account now pays 5%, others still offer you next to nothing.
Astonishingly, £418bn of savers’ money is languishing in savings accounts paying less than 0.1%, according to UK-based Paragon Bank.
For example, Barclays Everyday Saver continues to pay an insulting 0.01%.
If your bank or building society is greedily keeping rate rises to itself, it’s time to move on.
WHY YOU MUST FIGHT BACK AS INFLATION SOARS
Rocketing inflation is hitting your savings. Today’s 9.1% rate will erode the purchasing power of £10,000 held in a bank account paying 0.1% by £900 a year. And it could get worse, with the Bank of England predicting consumer price growth will hit 11% in October.
So as food, fuel and oil costs soar, your cannot afford to let your savings fall too far behind. You need the best interest rate possible, as you may find yourself dipping into them sooner rather than later. It is now possible to get a decent interest rate on your current account, as well.
GET A BETTER RETURN ON YOUR CURRENT ACCOUNT
Banks are in a constant battle to win new customers and have come up with two strategies to encourage people to switch.
The first is to offer a one-off introductory cash bonus for signing up to their current account. The other is to pay interest on it.
Nationwide has increased the interest rate on its FlexDirect current account, which now pays 5% on balances up to £1,500. That is worth a maximum £75 a year. The downside to this is that Nationwide only pays that 5% for 12 months. After a year, the rate drops back to just 0.25%.
However, it also offers a cash bribe to complete the deal. Existing Nationwide members who switch a current account from elsewhere get a welcome bonus of £125, taking the maximum total benefit to £200 in year one. New customers get a £100 incentive fee, so they could rake in £175 in total.
To qualify, you must switch from another provider using the Current Account Switch Service (CASS), pay in at least £1,000 a month, and transfer a minimum of two active direct debits.
Other banks are fighting for business by offering welcome bonuses, says Sarah Coles, senior personal finance analyst at assets management company Hargreaves Lansdown.
HSBC Premier and HSBC Advance accounts offer new customers switching via CASS a welcome bonus of £170. “Unlike most current accounts, you don’t have to pay in a minimum sum each month, simply an initial £1,500,” says Sarah.
Award-winning First Direct, owned by HSBC, offers a £150 cash bonus. To qualify, you need to open a 1st Account, switch your everyday banking using CASS and pay in at least £1,000 within three months.
In return, you can save between £25 and £300 for 12 months in the bank’s Regular Saver account, which pays 3.50%. That gives you £68.25 if you pay in the maximum.
“First Direct has a great reputation for service, which may end up being far more important to you than the initial joining bonus,” Sarah adds.
The Virgin Money M Plus current account offers new customers 20,000 Virgin Red points to spend on anything in the scheme.
“This will roughly cover the cost of a case of 12 bottles of wine for example,” says Sarah.
It pays 2.02% interest on your balance up to £1,000, worth £20.20 a year. And you get access to the M Plus
Saver, which pays a variable 1.56% a year on balances up to £25,000, and 0.75% on sums above that.
To qualify, you have to pay in at least £1,000, use the mobile app and set up two direct debits.
You can get a £125 welcome bonus if you switch to a Club Lloyds Account using CASS. This charges a £3 monthly fee that is refunded each month you pay in at least £1,500.
While a bonus is welcome at times like these, it should not be the only factor guiding your decision, advises Sarah.
“Decide which features matter most to you, whether savings rates, overdraft costs, app functionality or service levels.”
Santander 123 has just increased the interest rate it pays on the part of your balance that it is in credit, from 0.50% to 0.75%. While at the lower end, this is paid on balances up to £20,000, giving a maximum of £150 a year.
MAKE YOUR SAVINGS WORK HARDER TOO
The Bank of England has now hiked saving rates five times since December, from 0.1% to 1.25%. This is finally feeding through to higher savings rates, with new market-leading deals offered all the time.
Average rates on one-year fixed-rate bonds climbed 0.29% to 1.53% in June, the best rate since October 2013, according to Moneyfacts. The average easy access rate is now 0.46%.
YOU CAN GET A LOT MORE JUST BY SHOPPING AROUND
United Trust Bank’s online one-year fixed-rate bond now pays 2.50%, while its two-year bond pays 2.90%. If you can lock your money away for five years, the Bank of London and The Middle East (BLME) pays a fixed rate of 3.25% a year.
Rachel Springall of finance information firm Moneyfacts said fixedrate savings are rising at an “astounding pace” so think twice before locking in for a lengthy period. “Savings rates should be higher in the weeks to come, as the Bank of England hikes its rates again.” One option is to take out an account where you have to give 120 or 90 days notice to get at your money. Once that has expired, you could look for another best buy deal.
The rates war has improved prospects for savers but recent improvements will be bittersweet, said Laura Suter, head of personal finance at investment specialists AJ Bell. “Many are having to dive into their savings to pay for the rising cost of living, just as they would have been able to generate a slightly better return.” Anna Bowes, cofounder of savings rate tracking service Savings Champion, says smaller “challenger banks” offer the best savings rates, while the high street giants have been slow to respond. HSBC,
Lloyds and NatWest increased their easy access rates from 0.01% to 0.10%. As mentioned, Barclays Everyday Saver continues to pay just 0.01%.
Someone who switched their money to the Chase account recently launched by JP Morgan – which pays 1.50% on balances up to £250,000 – could get 150 times the return.
“By switching to Chase you could earn £15 a year for every £1,000 deposited, as opposed to just 10p with Barclays Everyday Saver,” says Anna.
Andrew Hagger, savings expert at MoneyComms.co.uk, says the savings market has been transformed by the country’s rising interest rates.
“If you have some cash languishing in a high street bank account, paying next to nothing, it’s an absolute nobrainer to move it to a best buy deal.”
He rates the Chase account, and three others – Zopa Smart Saver, which pays 1.40% and allows unlimited withdrawals; Sainsbury’s Bank Defined Access Saver which also pays 1.40%, but limits withdrawals to a maximum of three a year, and Aldermore Easy Access Account which pays 1.35% with unlimited withdrawals.
Andrew’s favourite one-year fixedrate bonds are offered by challenger banks Atom Bank and Tandem Bank, which both pay 2.60%.
He also highlights Charter Savings Bank and Cynergy Bank, which pay 2.57%, and Investec, which pays 2.55%.
Although these are lesser-known names they are still safe as the first £85,000 of your money is protected by the government through the Financial Services Compensation Scheme, or FSCS. Always check to see you have that cover.
Kevin Mountford, co-founder of savings platform Raisin UK – which offers a range of market-leading deals from different providers with easy switching – says if your bank has failed to pass on the recent base rate rises, it is time to shop around.
“You can choose any bank or building society that falls under the FSCS with complete peace of mind.”
Fixed-rate savings are rising at an astounding pace so think twice before locking in for a lengthy period Rachel Springall of Moneyfacts