Rubbish rates – what is a saver to do?
-Rachel Mason is PR manager at Fair Investment Company. The opinions expressed are her own.-
The base rate is going to be stuck at 0.5 percent for years to come, according to experts, so where does that leave savers?
Yes, the base rate needs to be low for any real economic recovery, and many mortgage holders can’t believe their luck, with many seeing their payments plummet. But there is always a flipside, and with a low base rate comes low savings rates.
With inflation up at 5 percent (as measured by the Retail Prices Index) it is impossible to get a savings account that even maintains the value of your money, let alone increases it, so what should savers do in such a low rate environment?
Well, unfortunately, since National Savings and Investment’s withdrawal of its tax-free index-linked certificates, virtually all savings accounts are paying interest rates below RPI inflation.
So what can you do? Well, if you are looking for a purely cash account, realistically, the only way of securing a relatively reasonable rate on your savings is to go for a fixed rate savings account – the best ones at the moment are offering around 3.15 percent, when fixed for one year, and 4.90 percent when fixed for five years.
With a fixed rate, you know where you are for the entire term, whereas often with variable rate accounts, providers offer what seems like a good deal but they can pull the rate at any point, so you may only get the advertised rate for a few months. If you can afford to leave your money alone for a few years, it may be well worth fixing for a longer period of time, because analysts are predicting interest rates to stay low for some time.
Of course, you should only put your money into a fixed rate account if you are fairly confident that you will not need it before the bond matures – early withdrawals tend to be either expensive or are not permitted at all. You should also make sure you do not invest any more than 50,000 pounds with any one provider (the limit covered by the Financial Services Compensation Scheme.