Savings returns about to plummet

Thousands of savers with fixed rate bonds could lose out on hundreds of pounds in interest if they fail to act when their accounts expire.


Thousands of savers with fixed rate bonds could lose out on hundreds of pounds in interest if they fail to act when their accounts expire.

According to HSBC, there are more than 4.7 million fixed rate products worth almost £92billion maturing this year, with the largest number, 534,638, maturing this month (October).

One of the reasons so many accounts are maturing now is because we have just seen the anniversary of the collapse of Northern Rock, when thousands of savers rushed to take their savings out and invest them in different accounts elsewhere.

But savers who fail to switch accounts once their fixed rate bonds expire could miss out on more than £500 in interest.

And with the Bank of England base rate held at 0.5% for the 25th consecutive month this week, it is vital that savers do what they can to ensure they are earning as much interest as possible.

Here, we take a look at why it is so important to take action quickly, as well as some of the best places to reinvest your savings…

Why you can’t afford to do nothing has looked at the interest across a number of bonds both during their term and once expired and calculated the interest that could be saved by switching to a better deal.

For example, someone who invested £15,000 in Turkish Bank’s One Fixed Rate Bond in 2010, the interest earned during year one would have been £435 on an annual equivalent rate (AER) of 2.9 per cent.

However, once this bond matures the AER drops to 0.1 per cent, meaning they could be missing out on £420 in additional interest in year two.

Yet by switching to a competitive rate such as Cheshire Building Society or United National Bank’s Fixed Deposit account with an AER of 3.51%, the same saver could achieve £526.50 in interest on maturity- an increase of £511.

Kevin Mountford, head of savings at MoneySupermarket, said: “Savers cannot always rely on their banks to remind them their product term has come to end, so they must be vigilant and go as far as writing it in their diary or sticking a post-it note on the fridge to remind them.

“If you fail to respond to any maturity notification or fail to act, some providers will automatically enroll you into another bond, tying your savings up for the term of the product, or they will place your savings in an account paying a poor rate of interest.

Our analysis shows a significant amount can be saved simply by shopping around for a better deal, so it really pays to be alert. The fixed rate bonds that are currently available represent a great way of maximising returns as long as savers can afford to lock their money away for the term, and remember to check when the term matures.”

Best fixed rate accounts

The good news for savers with bonds due to mature soon is there are plenty of competitive deals to choose from if you want to tie your money up in another fixed rate account.

Over one year, for example, you can earn 3.40% with Tesco Bank, as long as you have at least £2,000 to invest. Allied Irish Bank offers the same rate on its one year Fixed Rate Bond on a minimum investment of £1,000.

And if you prefer to invest for two years, NatWest is offering 3.75% on between £25,000 and £500,000 while Tesco Bank is paying 3.60% on £2,000 or more.

If you want to lock your money up for even longer, then AA Savings is offering a five year bond fixed at 4.60% on a minimum investment of £1. Similarly, BM savings is paying 4.50% on its five year fixed rate bond, which again can be opened with £1.
However, if you are considering locking in for the long term, remember that while these rates might look tempting now, other more competitive deals are likely to become available when interest rates start to rise.

Other options

If you don’t want to tie up your savings in another fixed rate bond, then there are plenty of other accounts to choose from. If you haven’t used your cash individual savings account (ISA) allowance yet this year, then you should do so. You can invest up to £5,340 into a cash ISA this tax year, and the same amount in stocks and shares. Alternatively, you can invest the full allowance in stocks and shares.

The market-leading cash ISA at the moment is  which pays a highly competitive 3.07% annual interest tax-free on a minimum investment of £1,000. This rate includes West Bromwich Building Society’s WeBSave ISA 3, a 1.07% bonus payable for the first year, so you may want to move your money when the bonus disappears.

If you want an ISA without a bonus included in the rate, then Northern Rock’s eISA pays 3.05% on a minimum investment of £1. Both these accounts are exclusive to MoneySupermarket, so you won’t find them anywhere else, and both accept transfers in from existing cash Isa accounts.

If you have already used your ISA allowance this year, then you may want to go for an easy access account, which will enable you to get your hands on your cash whenever you need to.

For example, Nationwide Building Society’s MySave Online Plus account pays 3.12%, while Santander’s eSaver Issue 4 account pays 3.10%. These rates includes bonuses of 1.58% and 2.60% respectively for the first year, so you will need to move your money after this. You need £1,000 to open the MySave Online Plus account and £1 to open the Santander account.

Whichever account you go for, make sure you don’t hang around. Mr Mountford said;  “It’s important to remember that once the introductory offer has ended and the product has served its purpose, it’s time to get online, shop around and switch to a more competitive deal. Savers need to be quick as some of the best products may not be available for long.”

Please note: Any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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