What a difference a rate makes
Savers have seen their returns plummet because of the recent interest rate cuts, but some of these losses could be replaced if you move your money to one of the leading deals. Failure to do so could literally cost you hundreds of pounds.
The best rates are available to those who can afford to lock money away. State Bank of India’s five year fixed rate bond is paying 4.50%, which means someone who moves £10,000 over from an average paying account would earn £450 a year in gross interest - £435 more than if the money was left in an account paying 0.15%.
However, with interest rates at a historic low it’s probably not advisable to fix your savings for longer than a couple of years because they will start rising again at some point. Fixed rate bonds don’t usually allow withdrawals during the fixed term and early closures often result in a hefty penalty, so you risk being stuck on a rate that becomes uncompetitive if you lock your money for longer than a year or two.
And the good news is that you opting for a shorter term fix doesn’t mean you’ll have to make a big sacrifice in the rate.
ICICI Bank’s two-year HiSave Fixed Rate Account is paying the leading rate at 4.35%, which means you’d earn £435 gross interest over a year if you invest £10,000 - £420 more than if your money was left in an account paying the average rate of 0.15%.
Nottingham Building Society’s Fixed Rate Issue 67 account is also paying 4.35% - this rate is fixed until June 1 2011. Both the Nottingham and ICICI accounts require a minimum deposit of £1,000.
What else is available?
Other two-year fixed rate deals include Birmingham Midshires’ two-year bond at 4.25% - you can benefit from this even if you only have a small amount you can afford to lock away, as the minimum investment is just £1. And Halifax’s two-year fixed rate Websaver account pays 4.15%, although the minimum investment on this product is high at £25,000.
If you’d prefer a shorter-term product, West Bromwich Building Society’s E Bond 23 is paying a fixed rate of 4.27% until September 30 2010. Recent rumours in the press questioning the stability of West Brom have caused concern among some savers. However, the building society has denied it is financially unstable, and while problems in the future can't be totally ruled out, as long as you don’t invest more than £50,000 with West Brom, your money will be safe. For more information on how to keep your savings safe, read our article “Who owns who?”.
If it’s a 12-month product you’re after ICICI’s one-year Fixed Rate HiSave account has the highest rate at 4.0%.
What if you can’t afford to lock your money away?
If you’d prefer to retain access to your money, you will have to accept a lower rate of interest. That said, you can still earn more than the base rate.
ING Direct has the highest paying easy access account at 2.75%, so a balance of £10,000 would earn £275 interest over the year, compared with just £15 in an account paying 0.15%.
Other leading easy access accounts include Capital One’s Flexi Saver (issue 1) has a rate of 2.65%. There are also a number of products paying 2.50%. These include Abbey’s eSaver Issue 2, Egg’s Savings Account and Alliance & Leicester’s Online Saver Issue 4. However, bear in mind that all of these accounts include introductory bonuses so the rate will drop. You must therefore be prepared to move your money again once the bonus period ends.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing. Products underlined can be applied for directly.