Against such a backdrop, you might think there's little point in saving. However, reassuringly, a new report from Birmingham Midshires suggests individuals aren't turning their backs on saving. In fact the economic uncertainty is making many more cautious: they are refraining from raiding their savings pots to splurge on non-essential luxuries deciding instead to leave their money where it is in case of that rainy day.
This is a good sign as it is as important as ever to save but there is no denying the fact that it is extremely difficult for savers at the moment - you have to work much harder to find a decent home for your money and the onus really is on the individual to seek out the best deals.
The advantages of saving
While rates may not be what they were - interest rates on easy access accounts have slumped from an average of 2.77% in January last year to just 0.51% this year - there are still plenty of reasons to store your money in a savings account:
- Security - With so much job uncertainty it's well worth building up that savings buffer while you can, just in case the worst happens and you're made redundant.
- Unexpected events - If the boiler packs up or your car breaks down, would you be able to afford the repair bill? It's vital to have some money put aside in case of unexpected expenditure.
- Maintaining good habits - Savings rates will bounce back eventually and sticking to the savings habit makes good sense so you can capitalise when the economy recovers.
- Good rates are still out there - You just need to be more diligent about moving your money around and capitalising on the best returns.
What good deals are still available?
Average savings rates may be at a record low, but the best deals continue to pay significantly more than the 1% Bank rate so as a saver you need to ensure you are benefiting from these and that your money isn't left languishing in an account paying virtually no interest at all.
If you've not used your Isa allowance yet this year, a Cash Isa should be your first port of call. You can invest up to £3,600 each tax year (the current tax year ends on April 5) and the beauty of Isas is that interest is paid free of tax so you get a boost to your returns - critical in the current low interest rate environment.
Natwest's e-Isa is paying the leading rate at 3.25%. Other Isa accounts paying 3% or more include Scottish Widows' E-Isa and Marks & Spencer Money's Advantage Cash Isa which both have rates of 3.10%. Egg's Cash Isa is paying 3.05%, while Alliance & Leicester's Easy Isa has a rate of 3.0%.
Once you've used your Isa allowance, it's worth considering a fixed rate bond as the rates are higher than those on the leading easy access accounts. That said, this type of account is only suitable if you have a lump sum you can afford to lock away as you can't usually access your money during the fixed term. ICICI's HiSave Fixed Rate Account is paying 3.9%. This rate is fixed for a year so you'll be protected from further interest rate cuts.
You'll need to retain access to some of your money, just in case you need to dip in to your savings. The highest paying easy access accounts pay around 3.5%, although be warned, the rates are variable so they could fall in the coming weeks as providers respond to this month's interest rate cut. The Citibank Flexible Saver Issue 4 pays 3.56% while Egg's savings account pays 3.5%.
If you are unsure about which type of account to go for, read our article 'How to choose a savings account'.
Click here for more details of current savings rates.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.
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