Savings rates rise
For more on the MPC announcement, check out our video blog.
While this may not be the news that homeowners had hoped for, it is a welcome boost for savers. Traditionally interest rates on variable rate accounts have been linked to Bank rate, while fixed-rate savings are influenced by the interest rates quoted on the longer term money markets. So when Bank rate is frozen you wouldn't normally expect savings rates to change.
However, financial institutions are still desperate to attract money from retail savers to plug the gap that has been caused by the shortage of funding in the wholesale money markets. Consequently, there's been a flurry of activity in the savings market over recent days with a number of providers having increased their rates.
The most prominent rate change came from the Alliance & Leicester (A&L) eSaver which rose to a market-leading 6.56%. Heritable Bank has also launched a new Online Saver account, with a rate of 6.51% and just last week the ING Direct Savings Account hiked its rate from 6.0% to 6.50%.
These rates won't last forever - particularly if Bank rate starts to fall as is widely predicted later this year - but for now, it's a great time to be a saver and you should be looking to take advantage of some of the fantastic products on offer.
So what are the market-leading deals?
In the 'easy access' sector, the new A&L eSaver rate of 6.56% is the market-leader. The rate includes a 0.94 percentage point bonus which runs until December 7 2009, so the 'go-to' rate is less competitive at 5.62% and although you can access your money whenever you want, you will be penalised for doing so. This account pays no interest during any month a withdrawal is made - with the exception of July. So while you can access your cash whenever you want, you will earn a much lower rate of interest over the course of a year if you do so.
If you want a savings account with no bonus or withdrawal penalties, then the Kaupthing Edge Instant Access Savings Account is worth considering. It is paying 6.55% and the rate is guaranteed to be at least 0.3 percentage points above Bank rate until February 2012.
Indeed, there are a cluster of accounts offering rates of 6.50% or more. These include the Birmingham Midshires e-saver account (issue 2) at 6.52%, the Bradford & Bingley Internet Saver 3 at 6.51% and the Abbey esaver direct at 6.50%. The Abbey deal however, does include both withdrawal restrictions and a bonus. You can withdraw money at any time from the Abbey esaver direct, but you will only receive interest of 2.75% for the month the withdrawal is made. The rate also includes a 12month bonus of 0.75 percentage points.
Both the newly launched Heritable Bank Online Saver Account at 6.51% and the ING Direct Savings Account at 6.50% include bonuses. The Heritable Bank deal includes a 0.61 point bonus for 12 months, after which the rate drops to 5.90%, and the ING Direct Savings Account has a large introductory bonus - the rate drops to 4.75% after a year. Therefore if you take advantage of either of these deals now it may well be worth shopping around again in 12 months time to ensure the rate is still competitive.
What about fixed savings rates?
If you are happy to lock your money away, you can take advantage of some even higher rates. There has not been much movement in the fixed rate bond market in recent weeks, but the leading deals continue to pay in excess of 7%.
The ICICI Bank Hisave Fixed Rate Account is the market-leader with a rate of 7.20% on minimum investments of £1,000 for those willing to lock their money away for one year.
There are other competitive rates out there - particularly from foreign banks. ICICI's Icelandic compatriot, Kaupthing Edge, offers 7.15% on its Fixed Term Deposit Account for one year or three years, while fellow Icelandic group Icesave offers 7.06% on its Fixed Rate Savings Account for one-, two-, or three-year terms. The Firstsave First Bank of Nigeria offers a rate of 7.10% on its One Year Fixed Rate Bond.
If you prefer to bank closer to home then the Anglo Irish Bank has a nine-month fixed rate bond at 7.06%.
With so much choice in the market there really is no excuse to let your money flounder in an account paying a derisory rate of interest. Every penny counts in the current climate, so start making more of your money.
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Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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