The money has been frozen since Icesave’s parent company, the Icelandic bank Landsbanki, collapsed last month. While the moment savers see their hard-earned cash again won’t come a second too soon, they now have to decide what to do with it next. We look at what options are available to them.
Rush for a quick fix
If you’re looking for the maximum return, the best rates are available on fixed rate bonds. There are still a number of providers offering rates in excess of 6%, which is pretty impressive given that Bank rate has fallen to 3%.
However, following the Bank of England’s shock 1.5 percentage point rate cut earlier this month, deals are disappearing quickly so you’ll need to act fast if you want to take advantage.
ICICI Bank has cut the rate on its HiSave Fixed Rate Account for the second time in a week. It is now paying 5.75%, which is fixed for a year (down from 6.60% previously).
Don’t lose your Isa benefits
Chancellor Alistair Darling has stated that Icesave savers will be able to keep the tax-free status of their Isas – under normal circumstances, the tax-break is lost if an account is closed. You only retain it if it is transferred directly to another Isa. This won’t happen to Icesave customers as their money will be refunded to their linked account. However, the Treasury has confirmed that as long as this money is reinvested in another cash Isa before April 5 2009, savers will not lose their tax-break.
Scottish Widows’ E-Isa, which is a variable rate deal, is paying 6.0% but if you would prefer to lock in to a fixed rate deal Halifax’s Fixed Rate Isa has a rate of 5.50% and this is fixed for a year. Also, bear in mind that many variable rates haven’t yet changed following the recent rate cut and when comparing Isa products make sure the account accepts Isa transfers – some deals only accept new money, meaning you can’t transfer money invested in previous tax years.
If you have yet to use this year’s Isa allowance and are due to be reunited with your Icesave savings, it’s worth considering an Isa for some (if not all) of it – you can invest up to £3,600 a year in a cash Isa.
Shop online for higher rates
If you are looking for a standard easy access account, online deals tend to offer higher rates of interest than those which are accessible over the phone or through a branch - the reason for this is that overheads are lower. Icesave’s accounts were internet-only deals and therefore former customers looking for a new home for their money will be used to transacting online and be well-positioned to take advantage of the leading rates. Remember though, that rates may fall in the coming weeks as providers announce their response to this month’s reduction in Bank rate.
The Tesco Personal Finance Internet Saver is paying 6.50%.
Other accounts offering rates above 6.0% are internet accounts with no branch access such as the AA Internet Saver at 6.46% and the Alliance & Leicester eSaver Issue 2 at 6.30%.
Once bitten, twice shy
Security is also likely to be of paramount concern to Icesave customers, seeing as though they have witnessed, first hand the fact that seemingly sound banks are potentially vulnerable. That said, they are also probably more aware of the FSCS and the protection UK savers have in the event of an institution collapsing.
In the case of Icesave, the UK Government stepped in to ensure that no one lost any money, but going forward, the key message to any saver is to make sure you have no more than £50,000 deposited with a single institution.
The only exception to this is if you invest it with National Savings & Investments or Northern Rock. They are Government-backed and as a result, all money held in their accounts is totally protected. Northern Rock pulled its accounts last month to control demand, but it has just re-opened its doors again to new savers. Its E-Saver account is paying 5.15%.
If you have more than £50,000 invested in cash, spread your money around. Our articles Who owns who?, How safe is your bank? and How to keep your savings safe provide more guidance about how to do this.
Disclaimer: Please note that any rates or deals mentioned in this article were available at the time of writing.