There has been widespread activity in the banking sector in recent months with ING Direct buying the accounts of Kaupthing Edge and Heritable Bank; Abbey, Alliance & Leicester and Bradford & Bingley all part of Santander; and a number of proposed mergers leaving questions over how reduced competition in the market may effect rates going forward. In our latest video blog Martin Rutland from ING Direct explains what impact the recent activity is likely to have, but with rates of return tumbling since Bank rate was slashed by 1.5% in November, the switch in focus from interest rates to security could hardly have come at a better time. However, is it really necessary to sacrifice rates for peace of mind?
How the safe havens compare to the rest of the market
There are two safety nets for savers in the UK with which the security of savings need never be a concern – Northern Rock and National Savings & Investments (NS&I). Both are Government-backed and as such 100% of money held in their accounts is totally protected.
Unfortunately however, their deals are generally uncompetitive. Northern Rock pulled its accounts in October to control demand but has recently opened its doors to new customers. The Northern Rock E-Saver is an easy access deal that pays 5.15%. As yet, Northern Rock haven't made any further rate changes following the 1.5% cut in Bank Rate.
NS&I meanwhile, announced rate changes with the majority coming into effect on November 19. It cut its Cash Isa by 1.5% to a low pay rate of 2.40%, while its Easy Access Savings Account only offers savers with more than £50,000 a rate of 2.20% - a fall of 1.5%.
The best paying Isas offer much higher rates – for example, the Halifax Fixed Rate Isa Saver has a rate of 5.50% although no withdrawals are permitted.
Of course rates have been falling across the majority of savings providers with some of the biggest cuts made by Anglo Irish Bank, which has slashed the rates on its fixed rate bonds by as much as 2.40%.
Many providers have cut rates at levels that have surpassed the Bank rate reduction of 1.5% in November. Lloyds TSB for example, has cut its term deposit savings rate by up to 2%, and Capital One cut its variable rate and Base Beater savings accounts by as much as 2%.
How savers can stay secure and maximise savings
It is possible to keep savings secure without putting all of your cash into NS&I or Northern Rock. Under the Financial Services Compensation Scheme (FSCS), up to £50,000 is protected with any one financial institution – meaning that as long as you keep no more than £50,000 in one financial home your money will be safe. For more on how to spread your money around, including which banks are part of the same financial institution, read our articles Who owns who?, How safe is your bank? and How to keep your savings safe.
Last week the financial regulator announced a rule change that will enable a building society which merges with another society to keep its separate compensation limit. The last year has seen a rash of mergers, including Yorkshire and Barnsley building societies. Now savers with money in both societies will not lose any compensation protection if they have up to £50,000 with both, despite the fact that merged building societies have to operate under a single Financial Services Authority (FSA) authorisation.
By spreading your money around you can also take advantage of the leading savings rates. However, the message is to act fast as, with another rate cut expected on Thursday, these rates won’t be around for long.If you’re willing to lock your money into a fixed rate account you will avoid the effects of forthcoming rate reductions. For short-term savers, the Halifax Fixed Web Saver has the most competitive rate at 5.80% for three months on balances ranging from £500 to £9million. However, you can only open a Web Saver fixed rate option by transferring your money from either a Halifax or Bank of Scotland Current Account (as long as you have registered it online) or a Web Saver variable rate option.
The Birmingham Midshires Internet Six Month Fixed Rate Bond is competitive with a rate of 5.83% for six months but savers should be aware that Birmingham Midshires is also part of the Halifax Bank of Scotland (HBOS) group. ICICI Bank’s Hisave Fixed Rate Account is another attractive option at 5.75% fixed for one year.
Variable rate deals should be opened with a note of caution – the rates offered are likely to fall again as Bank rate tumbles. However, savers willing to spread their money around can currently capitalise on highly attractive rates on easy access accounts with the Nottingham Building Society Sleep Easy Saver, the current market-leader at 6.50%, and Tesco Personal Finance Internet Saver at 6.00%.
For the 72% of consumers who now rank security above interest rate when shopping for a savings deal the key is to remember that you needn’t sacrifice one for another. Both can be attained as long as you’re savvy with your approach to saving and spread your money around.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.