Despite three interest rate cuts since December last year, and with the credit crunch continuing to bite, savers are proving the surprise winners this summer, with many attractive accounts on offer.
Banks and building societies are desperate to attract new customers with money to invest due to a lack of liquidity in the lending market, and this has resulted in savings rates reaching levels we have not seen for years.
Many of the best savings deals to be found are on fixed rate bonds, which, as their name suggests, pay a set rate of interest for a period of time. Savers considering this sort of account must be prepared to leave their money untouched for the term of the bond, as there will often be steep penalties to pay if you wish to withdraw your money early.
If you do want a fixed rate bond, however, it is worth bearing in mind that you don’t necessarily have to lock your money up for very long, as fixed rate terms often start from six months. For example, National Counties Building Society is currently offering a highly competitive 6.82 per cent gross interest a year on the 23rd Issue of its six-month Savings Bond, which can be opened with a minimum investment of £1,000.
However, the top rate of interest currently available is on a one-year Fixed Rate Savings bond from online bank Icesave, which is paying a massive 7.01 per cent gross interest a year, again on a minimum investment of £1,000. Icesave, which is part of Icelandic bank Landsbanki, is also offering two and three-year bonds, paying 6.6 per cent and 6.5 per cent respectively.
Anyone wishing to take advantage of these rates will need to get their skates on, as the deals offered are changing daily and often disappear almost as quickly as they are launched.
With the current economic situation in the UK still so volatile, it is understandable that many people may prefer to opt instead for accounts which provide them with instant access to their money. There are still some impressive deals on offer to those for whom this is a priority, but again, it pays to do a bit of homework first to make sure you are getting the best rate of interest possible.
Current best buys include Issue 3 of Building Society’s Rainy Day Savings account, which pays a variable interest rate of 6.1 per cent gross interest a year on a minimum investment of £10, and Heritable Bank’s Easy Access Issue 2, which pays 6.06 per cent gross on a minimum opening balance of £1,000.
Whichever account you choose, it is vital to build up some savings – particularly in these difficult times – so that you have an emergency fund available in case of unforeseen circumstances, such as a job loss, or being unable to work due to illness of accident. Aim to have at least three months’ salary in a savings account, and, however hard it may be to put something away regularly when you are feeling the pinch, try and get into the habit, or you’ll end up missing out on some of the best savings rates for years.
By Melanie Wright
All rates correct as at May 10, 2008