Savings accounts: Claer Barrett outlines where to get good rates
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The Bank of England destroyed savers’ retirement dreams when it slashed base rates to 0.25 percent in March 2009, as it battled to save the economy from the banking crash. Savings rates fell off a cliff.
The death of cash spelled disaster for millions of older people who relied on the interest from their savings accounts to fund their retirement.
They watched in helpless fury as the Government rushed to bail out the greedy bankers, spending tens of billions of taxpayers’ cash saving Lloyds Banking Group and Royal Bank Of Scotland (now NatWest).
Ordinary savers who had done the right thing and carefully squirrelled money away for the future were treated like vermin.
In 2012, HM Treasury completed savers’ misery by launching the Funding for Lending Scheme, which gave bankers a cheap line of credit so they did not have to offer decent savings rates to raise funds.
For a dozen years, savers got next to nothing.
This year it’s different. Shares and bonds have crashed but best buy savings accounts pay up to five percent.
Suddenly, cash is king again.
The new breed of challenger banks are falling over themselves to offer best buy savings accounts, with new deals launched almost every day.
Santander has a top easy access account paying 2.75 percent on savings up to £250,000.
Coventry Building Society offers a string of market-leading fixed-rate savings bonds, paying up to 4.85 percent.
United Trust Bank recently launched a new five-year bond that pays a fixed rate of five percent a year.
Barclays, Lloyds and NatWest have been slow to respond, but even they are belatedly giving it a go.
After a rummage on the Barclays website, I found its flagship Blue Rewards Saver increases from today. It now pays 1.5 percent, which ain’t exactly great.
However, its Rainy Day Saver does pay five percent, even if this drops to 0.25 percent the moment you have more than £5,000.
The Barclays 1-Year Fixed-Rate Bond pays 2.75 percent, which looks quite good until you see that market leader RCI Bank pays 4.60 percent.
Somebody saving £10,000 would get £275 a year from Barclays, but £460 from RCI. That’s £185 more.
Still, at least Barclays is trying.
The Lloyds Easy Saver account pays just 0.40 percent. Its Monthly Saver pays 4.50 percent, but only for one year on a maximum £250 a month.
Its one-year Online Fixed Bond pays 3.40 percent, which is actually pretty good, although RCI is still better.
It is a similar pattern at NatWest. Its Digital Regular Saver pays five percent, but only on balances up to £1,000. Thereafter it drops to one percent, then 0.25 percent.
NatWest’s one-year Fixed Term Savings bond pays just 1.30 percent.
It’s all a bit half-hearted but it’s better than nothing. Which is what their customers were getting before.
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I suppose we can’t expect the high street giants to compete with the young and hungry challenger banks, who are willing to offer loss-leading accounts to win market share.
Yet for years they offered rip-off rates, adding insult to injury. Even they can’t fail to respond to this year’s interest rate upswing, though.
Savers are also rising to the challenge and topping up their savings, despite the cost of living crisis. Total household cash deposits have hit a record £1.8trillion, according to new research from Aviva.
On Thursday, the Bank of England is expected to hike bank rate from today’s 2.25 percent to three percent.
If it does, savings rates will leap again. By the end of the year, savers could get six percent.
The downside is that even the best savings accounts pay well below today’s 10.1 percent inflation rate. Cash may be king again, but its powers are still limited.
This makes it more important than ever to shop around to get a good deal, rather than sticking with your own bank.
Barclays, Lloyds and NatWest are making an effort, but they’re still not trying hard enough.
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