Savers’ hopes have been bat­tered, but there are still ways to get good re­turns

Banks failed to pass on the re­cent rate rise, so you need to look hard for the best deals

The Observer - - Cash - Shane Hickey Cash Ed­i­tor

When the Bank of Eng­land raised in­ter­est rates in Au­gust for just the sec­ond time in 10 years, many savers breathed a sigh of relief that a “lost decade”, where they saw pal­try re­turns on their money, might fi­nally be end­ing. Any relief was short­lived, how­ever, as it be­came ap­par­ent that banks were mostly not pass­ing on the in­crease. It is es­ti­mated that less than a third of vari­able-rate sav­ings ac­counts saw any rise.

So what should savers do to try and get some re­turns?

Look out for the rates

They vary hugely. HSBC’s Flex­i­ble Saver ac­count of­fers just 0.15% – which means that if you in­vest £10,000, you will earn £15 over a year. “On the other hand, Mar­cus by Gold­man Sachs, which launched very re­cently, is pay­ing 1.50% on its easy-ac­cess On­line Saver Ac­count. That will pro­vide in­ter­est of £150 gross over the next 12 months – 10 times more than HSBC,” says Anna Bowes from sav­ings ad­vice site Sav­ings Cham­pion.

Get­ting good value may de­pend on go­ing with a lender that you may not be fa­mil­iar with – the high street tends to of­fer “piti­ful” rates, ac­cord­ing to Bowes.

The wait­ing game

Rates favour those who wait. The best are avail­able if you are will­ing to fix for as long as pos­si­ble, says Char­lotte Nel­son from Money­facts. But, she adds, many savers are turned off by sug­ges­tions from the Bank of Eng­land that rates will in­crease more in the com­ing years.

For ac­counts where no­tice is needed to with­draw the money, there are also bet­ter deals to be had than on the high street. Bowes points out the 1.8% that Paragon is of­fer­ing on an ac­count with a 120-day no­tice pe­riod. Mean­while, OakNorth Bank is pay­ing 1.77% on its 90-day no­tice ac­count.

Fix­ing rates for longer throws up nu­mer­ous pos­si­bil­i­ties. “On a min­i­mum bal­ance of £10,000, BLME is pay­ing 2.05% on a 12-month term ac­count – al­though this is a sharia ac­count, so the re­turn is an ex­pected profit rate rather than a guar­an­teed in­ter­est rate,” says Bowes. “For a lower min­i­mum bal­ance of £1,000, OakNorth is pay­ing a guar­an­teed 2.02% on its 12-month fixed-term de­posit ac­count.

“There are even bet­ter rates to be found over the longer term. Ikano Bank, which is Swedish and there­fore of­fers pro­tec­tion un­der the Swedish Com­pen­sa­tion Scheme on bal­ances of up to £85,000 per per­son, is pay­ing 2.70% gross/AER on its Fixed Five-Year Saver Ac­count.”

Be­ware terms and con­di­tions

With good rates can come lim­its and re­stric­tions. “Un­for­tu­nately, some of the best easy-ac­cess ac­counts are ei­ther ac­com­pa­nied by a bonus or a limit to the num­ber of with­drawals a saver can make,” says Nel­son. “Savers should note all the terms and con­di­tions be­fore open­ing the ac­count so there are no nasty sur­prises fur­ther down the line.”

Na­tion­wide build­ing so­ci­ety has an easy-ac­cess FlexDirect ac­count pay­ing 5% on bal­ances of up to £2,500. A min­i­mum of £1,000 has to be paid into the ac­count each month. If this con­di­tion is not met, then the rate can drop to 1%. And bal­ances over £2,500 will not re­ceive any in­ter­est, Bowes adds.

Such high in­ter­est cur­rent ac­counts can have a lim­ited life, warns Nel­son. “Whilst these deals are at­trac­tive, they of­ten only last for a cer­tain pe­riod. This could ap­peal to those who are look­ing to move their money else­where if the mar­ket picks up,” she says. “Many providers of­fer ex­clu­sive sav­ing deals for those who hold a se­lected cur­rent ac­count. These tend to have slightly higher rates than the new cus­tomer prod­uct, so it is al­ways wise to check.”

Are cash Isas an op­tion?

There has been a sharp drop in the amount in­vested in cash Isas as a re­sult of low in­ter­est rates. Changes to tax rules mean the first £1,000 of in­ter­est that an in­di­vid­ual re­ceives from sav­ings is now tax-free if they are a ba­sic-rate tax­payer – an­other rea­son cited for their de­cline.

How­ever, Moira O’Neill of In­ter­ac­tive In­vestor, an on­line trad­ing and in­vest­ment plat­form, says they should not be ruled out. “They could spare you a fu­ture tax bill if your sav­ings grow, or you earn more than the tax-free thresh­old. The more you are earn­ing and sav­ing, the greater the ar­gu­ment for stick­ing with Isas – again, you’ll need to find the best rates and switch when they slide,” she says. “If you can af­ford to tie up your money for five or, ideally, 10 years, it’s worth con­sid­er­ing a stocks and shares Isa. You can start in­vest­ing with as lit­tle as £25 a month and build it up.”

Per­sonal fi­nance web­site Money­totheMasses makes a cash Isa from Char­ter Sav­ings Bank the best on the mar­ket. With­drawals are sub­ject to 95 days’ no­tice or there is a loss of in­ter­est. The rate is 1.40%. Af­ter that, Vir­gin Money has one at 1.38% and Paragon Bank at 1.37%.

‘Cash Isas should not be ruled out … they could spare you a fu­ture tax bill if your sav­ings grow’ Moira O’Neill, In­ter­ac­tive In­vestor

Getty

Out to get good value: It may pay to go with a lender you may not be fa­mil­iar with, as the high street is ac­cused of of­fer­ing ‘piti­ful rates’.

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