Savers must keep cash on the move
Stay alert and work hard to find the best interest rate returns on your hard-earned money
CAN it get any worse for savers?
The Bank of England kept interest rates on hold again last week, but governor Mark Carney has more or less promised to cut them to 0.25 per cent next month.
While mortgages may get even cheaper, many savers are stuck in poor-paying accounts that can hardly go any lower.
HSBC’s Flexible Saver pays just 0.05 per cent and its subsidiary First Direct’s Savings Account is as bad.
Barely better, with a derisory 0.1 per cent return, are the Barclays Prime Account, Clydesdale Bank’s Instant Savings, Halifax’s Liquid Gold and Bonus Gold, HSBC’s Flexible Saver Preferential Rates, the Post Office Online Easy Saver Issue 1, and Santander’s Instant Saver.
Anna Bowes, director at independent savings adviser Savings Champion says: “The decision to leave base rate unchanged for at least another month will see savers breathe a sigh of relief – but they can’t afford to be complacent.
“Savers have been the sacrificial lambs of this downturn. While borrowers have benefited from historically low rates, savers have never known it so bad. However, they must not lose hope as there are still providers that want savers’ cash and are willing to pay a competitive return for it – keeping your cash on the move is a must to improve your returns.”
Adrian Lowcock, head of investing at Axa Wealth, adds: “Things are likely to get worse for savers with inflation expected to return, with the recent rise in oil prices, but more im- portantly the fall in the pound, driving up prices and eroding the value of cash.
“Inflation is insidious as it slowly erodes the spending power of savings, and since interest rates were cut to 0.5 per cent in March 2009, an average cash account has already lagged inflation by over 11 per cent.”
Susan Hannums, co-founder of Savings Champion, says: “If you want to be sure you are getting a better rate for a longer period, there are some good fixed-term rates currently available. Bagging them before they disappear could shelter your savings from any base rate decisions for a period of time.”
Some of the top-paying accounts have more than 40 times the interest available on the worst payers. Al Rayan Bank has a fixed-term account currently paying 2.3 per cent for three years – 46 times the interest paid on a 0.05 per cent account.
If you do not want to tie your money up for as long, Charter Savings Bank is offering 1.91 per cent for two years on deposits of £1,000.
The best standard Isa pays 1.3 per cent from Coventry Building Society.
You can get three, four or five per cent on amounts from £2,000 to £20,000 on cash held in the best five current accounts for interest, though you have to meet certain conditions.
TSB’s Classic Plus pays five per cent, but only on the first £2,000 and you have to pay in £500 a month as well as go paperless online.
Nationwide’s FlexDirect allows you the same rate on £2,500 as long as you inject £1,000 a month – but only for 12 months when the rate drops to one per cent and it is still better than the average bank savings account. Lloyds pays four per cent on £4,000 to £5,000, but pay-in of £1,500 a month is required plus two direct debits. There is also a £5 a month fee.
For those with more savings, the Santander 123 account pays a full three per cent once you amass £3,000, and it continues right up to £20,000. The account charges a £5 fee but only asks for a pay-in of £500 a month plus two direct debits which can earn you cashback.
The best no-strings account for lower amounts is Tesco Bank, which pays three per cent on balances up to £3,000, with no requirements for account management and no fee.
On the outlook for the economy, Maike Currie, director of personal investing at Fidelity International, says: “As we have seen in Japan and Europe, monetary policy can only go so far and then you need the Government to step up to the plate by financially stimulating the economy.
“The course for the new Chancellor Philip Hammond is clear: it’s time to wave goodbye to the age of austerity and usher in an era of lower taxes and Government spending.
“Savers and investors looking for a decent return on their investments may need to move money further up the risk spectrum, investing in equities or the slightly more risky bonds issued by companies rather than governments.”
Investors are naturally nervous. Leading online platform Hargreaves Lansdown reported last week that its investor confidence index had fallen at its steepest rate for five years. Its survey took place on June 30, and senior analyst Laith Khalaf says: “Investors are naturally twitchy about what Brexit means for the future of the stock market in the coming months and years.
“However, continued low interest rates will remain supportive of shares, not least because there is really nowhere else for investors to go for income.”