Savings shake-up - what’s next for your cash?

More protection for your savings, a base rate announcement and movement from some of the leading providers - it’s been a busy week in the savings market. I’ll show you how all of this affects your money, and what you should do next…

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If you like to keep track of the financial market you’ll have had little time to breathe over the last seven days, with several major announcements that directly impact your savings.

Let’s begin with the MPC announcement – which saw the base rate remain at 5.75% for another month.

The pressure seems to be off as far as more Bank of England base rate rises in the immediate future are concerned, with many predicting that the next move could actually see interest rates fall. However, providers have still been making moves to keep up the retail flow.

Just a few weeks ago Bradford & Bingley moved into a market-leading position with its Internet Saver offering 6.4% AER. This has now been joined at the top of the tables by Coventry Building Society which offers savers over the age of 50 a rate of 6.40%.

However, arguably the most significant move came from the IceSave Easy Access Savings Account, which increased its rate to 6.3% AER.

The reason the IceSave deal is so attractive is because it is guaranteed to remain above the base rate until October 2009. So that means you have some welcome reassurance no matter how the market moves over the next twelve months.

Other market-leading deals include the ICICI HiSave Savings Account which offers the same 6.3% AER with a guarantee to be at least 0.25% above the base rate until the end of this year; and if you want an account from a ‘household name’, the HSBC Online Saver is worth a look with a rate of 6.25% AER.

How long these rates will be available however, remains uncertain with the base rate now tipped to drop rather than rise in the future. That’s why it’s vital to grab on to a market-leading deal now before providers have a chance to adjust their rates.

It’s also worth taking a look at the fixed bonds available. Many providers including Abbey and Halifax have moved to improve their fixed bond offers over the short term. For example, the Abbey three-month e-bond offers 6.87% with a notice term of six days. Use the savings comparison tool to compare the market.

Before all this of course, came the decision by Chancellor Alistair Darling to introduce a ‘savings shield’ – that is 100% protection on the first £35,000 of people’s deposits in any institution. This is an increase on the previous level of protection offered by the financial services compensation scheme (FSCS) – which secured 100% of the first £2,000 and 90% of the next £33,000.

In my opinion this is a step in the right direction, but it doesn’t necessarily go far enough to encourage people to save more. In fairness, Mr Darling is now talking about extending this protection to £100,000 of savers’ money. We’ll have to wait and see.

The decision has already met with criticism from the Association of British Insurers which argues that the move distorts savers decisions on where to put money – pushing them towards cash deposits and away from investment products.

My advice is that you should simply be cautious about the way in which you save.

By the way, here is a tip: if you have a large amount of savings and spread them across several high interest-paying providers in the same stable - such as HBOS which runs Halifax, Bank of Scotland, Birmingham Midshires and the AA - to capitalise on high interest rates, you will only receive a single level of protection - i.e. 100% on the first £35,000 across the same stable of accounts.

Equally, joint account holders receive double the protection, as the £35,000 limit applies to each individual.

With that in mind, consider spreading your savings across several different groups in order to get the best interest rates and peace of mind. Check out the savings comparison tool to see what is available.

DISCLAIMER: Please note that any rates or deals mentioned in this article applied at the time of writing and may no longer be available/applicable today.

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