Kevin Mountford, Head of Current Accounts & Savings
The credit crunch may have created a miserable environment for borrowers but savers have been laughing all the way to the bank as providers compete to attract our money into retail deposit accounts to lower their reliance on wholesale markets.
However, this may all be about to change.
Though the latest inflation figures showed a jump in the Consumer Price Index to 3.8% in June from 3.3% in May, placing the index at its highest level since records began in January 1997, swap rates have actually fallen in recent days. Swap rates are used by lenders to fund fixed rate deals and when they fall it places downward pressure on fixed rate bonds.
Birmingham Midshires and Bank of Cyprus have withdrawn two of the leading fixed rate deals. Their products were paying 7.17% and 7.15% respectively. The decision by these institutions to pull their products takes the pressure off other providers to retain their rates so if you want to take advantage of one of the 7%-plus fixed rate deals, there is no time to lose as we could well see other products pulled in the coming days.
There are also signs that variable rate products may soften too. Abbey has launched a new version of its Instant Access account, which previously paid 6.5% but now pays 6.3%.
The good news is that excellent savings rates are still available - but clearly the emphasis is on the consumer to act quickly and move to one of the market leading deals as soon as possible.
What are the leading deals?
The highest rates are available in the fixed rate market. Despite the withdrawal of Birmingham Midshires' and the Bank of Cyprus' deals there are still a number of providers offering rates in excess of 7%. Kaupthing Edge has the leading fixed rate - its fixed rate bond is paying 7.15%.
There are other competitive rates available from the likes of West Bromwich Building Society and Firstsave First Bank of Nigeria which are offering rates at 7.12% & 7.10%. Icesave's Fixed Rate Savings Account is available for one, two or three year terms at 7.06%.
If you want to save for your child, the Post Office offers a One Year Growth Bond, which can be opened for children under the age of 16. The rate is highly competitive at 7.05% with minimum investments beginning at £500.
Indeed there are a still host of 7% plus deals on the market, including the Derbyshire Building Society Fixed Rate Bond Issue 162 at 7.01% and the ICICI Bank HiSave Term Deposit at 7.0%, both of which allow minimum investments to begin at just £1.
However, even though there is still plenty of choice at the moment, it will only take a few more big players reducing their rates for the domino rally to start. It may not be long before earning a rate of 7% on your savings is a thing of the past.
What if you don't want to lock your savings away?
One drawback of fixed rate bonds is that you cannot usually access your money during the fixed term. If you need access to your savings, you will have to accept a slightly lower rate. That said you can still earn well above the 5% Bank rate.
The Derbyshire BS has the market leading easy access account at 6.55% on balances above £1,000, but savers are only permitted to make four withdrawals a year. If you want an account allowing unlimited access the Birmingham Midshires e-saver account issue 2 is the market-leader. It's paying 6.52% on balances above £1. However, this deal is closely followed by a cluster of accounts all offering 6.50% or more.
One of them is the newly launched Bank of Scotland Instant Access Savings Account Reward (IASAR), which pays 6.50% on balances between £1 and £9,999,999. The rate applies for 12 months at which point it reverts to the standard Instant Access Savings Account with variable rates, currently paying 5%, meaning you may have to move your money again after a year. The deal does come with a catch as you are restricted to four withdrawals during the initial 12month period.
In many respects the IASAR is a fusion between a fixed rate account and an easy access account - the 6.50% rate is fixed but you do have the option to withdraw cash and you can make unlimited deposits. Consequently it may be attractive to many savers, particularly as variable rates could fall.
If you're happy with a variable rate deal then there are still plenty of options without catches. The Bradford & Bingley Internet Saver 3 offers 6.51% with no bonus or withdrawal penalties and has a guarantee to match Bank rate until January 1, 2010. The Kaupthing Edge Instant Access Savings Account offers 6.50% with no bonus or withdrawal penalties and it too has a guarantee - it will be above Bank rate by at least 0.30% until February 1, 2012. The Capital One Savings Account also offers a rate of 6.50%, but this includes a one percentage point bonus, although unlimited withdrawals are permitted.
There are two other accounts offering 6.50%: the Abbey eSaver direct and the Alliance & Leicester (A&L) eSaver. However, these do penalise you if you make a withdrawal. A&L pays no interest in months a withdrawal is made, with the exception of July, while Abbey pays just 2.75%. The annual effective rate will therefore be lower than 6.50% if you do dip in and out of these accounts. The Abbey account also includes a 12-month bonus of 0.75 percentage points.
For an overview of the savings market, check out our savings comparison tool.
Have your say: Do you think savings rates are going to fall? Have you secured a good deal? If so, what was it and what made it attractive? Visit our forum and share your experiences.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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