By Stephen Jones
Following our first Credit Card Spotlight a few weeks back, we’re now launching our first regular round-up for savers. With updates on interest rates, news on what’s affecting your nest egg and top saving tips, we’re hoping it will offer everything you need to know about saving today. Here’s what’s happening this month...
Rates are low – don’t let your savings languish
With inflation high and rates low, it is truly a miserable time to be a saver. As a result, it’s absolutely vital to make the most of what you have already.
According to the Bank of England, the average rate on a branch-based instant access account is currently a miserly 0.12 per cent, the lowest on record. More reason than ever to make your money work for you. Take a look at our ISA best buys table to see the best offers currently available, including a leading three-year Cash ISA from RBS, currently offering 4.00 per cent per year.
Picking a fixed-rate bond? Watch out for the honeytrap
A number of fixed-rate bonds are currently being launched, making them the most competitive area of the savings market at present. Sadly, you still won’t get a great return, with current rates down to a record low of 2.2 per cent on average.
However, one thing that could be overlooked is the small print when it comes to these bonds. While some will allow you to withdraw money before the end of the term with an interest penalty, many will not permit withdrawals at all, unless you die before the period is finished.
As a result, before tying your money away, think about how stable your financial situation is – if there’s any chance you’ll need to access your money again soon then consider another option.
As always, the key is to know the terms and conditions of a product before you sign-up; and perhaps consider whether it’s worth waiting for a rise in interest rates (more to come on that later) before locking your money away in basic savings for such a long period.
Inflation, interest rates and the Budget conundrum
In the last week there was some pretty significant activity at Mansion House, home to the Lord Mayor of London. While most of the publicity surrounded George Osborne’s revelation that financial regulatory powers will be shifting to the Bank of England from 2012, the governor of the Bank had some words of significantly greater interest for us save-a-holics.
Inflation has, of course, remained way above target for a few months now – with the latest measure standing at 3.4 per cent. Despite this, Mervyn King, the governor of the Bank, has indicated that there are no plans to quickly raise interest rates in response – despite savers still struggling to get any significant real returns.
However, he also pledged to hike rates as soon as growth becomes stable – meaning that we could see an increase in the current record-low levels by the end of this year.
In other political news, the new coalition government’s very first Budget will be announced on 22 June. Will anything be done for savers? What will the changes mean for your nest egg? Come and join our live Budget webcast to ask your questions and hear the views of some of the UK’s leading experts in personal finance.
Top Tip
This month’s top tip for savers comes from Joanne Garcia, head of money at Confused.com. She says:
“Interest rates are low – no-one needs reminding of that. However, don’t allow this to put you off saving into your tax-free ISA. You won’t get a great return this year, and while next year’s events are unpredictable, rates won’t stay rock bottom forever.
“Just think about where you’ll be a few years down the line. Let’s say that interest rates will rise to 6 per cent by 2013 and you managed to use your full cash ISA allowance each year from today. You’ll then be gaining that interest on £15,300 of savings you’ve already built up, without paying a penny to the taxman.
“I know I’d rather be with that than without it, so just keep rolling your savings over and you’ll be amazed how much of a nest egg you’ll be able to build up. As always, the saving game is about staying smart and thinking about the long term.”
