NEWS |
Savers are poised to enjoy a bonanza of higher interest rates in the coming weeks — after suffering months of falls — as desperate banks and building societies vie for cash to rebuild their balance sheets.
Abbey and Nationwide launched new leading fixed-rate bonds last week, and a cash Isa war is in the offing in the run-up to the end of the tax year.
Andrew Hagger at price-comparison site moneynet.co.uk said the worst was over for savers so they should hold out for better cash Isa deals.
Saffron building society unveiled a new cash Isa paying a fixed 7% for 12 months last Tuesday. However, you must pay in £25 to £300 every month and transfers from existing Isas are not allowed.
Michelle Slade at financial-data firm Moneyfacts said: “Early indications are the Isa season is going to be as fierce as ever. We’re already seeing providers launching new higher-rate products and more deals are expected in the next few weeks.”
Nationwide said that it, too, would launch a cash Isa in the run-up to the new tax year on April 6, and Halifax is believed to be planning to enter the fray.
ISAS
First Direct’s Regular Saver Isa pays 7% on savings of £25 to £300 a month for a fixed 12 months, after which the rate will drop to its cash e-Isa rate, currently 1%. Royal Bank of Scotland and NatWest pay 3.51% and 3.45% respectively to Cash Isa Plus savers. Lump sums of up to £3,600 per tax year can be stashed into the accounts, but transfers in are not permitted. Marks & Spencer Money pays 3.1% on its Advantage Cash Isa, which does accept transfers.
With better rates round the corner, it is worth holding off. Abbey expects to launch its Isa on March 2, while Barclays plans to announce its offering the following week.
Although Bank rate has fallen, swap rates — the rates at which banks and building societies lend to each other — have edged up, pushing up the rates firms will pay to savers. Abbey bounded to the top of the best-buy tables on Friday with its two-year bond paying 4.01% annually. The account, also available at Alliance & Leicester branches, has a monthly interest option at 3.94%. However, the minimum deposit is £30,000, and maximum £2m.
Those looking to tie in for longer can get 3.75% over three years from Coventry building society or the same rate over four years with Nationwide. Abbey said its bond would be available “while funds last”.
VARIABLE SAVINGS
Variable-rate savings are still falling, and further cuts are expected when February’s half-point cut to Bank rate filters through to deposit accounts at the end of the month. David Black at financial data firm Defaqto said: “Savers can improve their lot by moving to better accounts or taking advantage of introductory bonuses.”
The government’s savings arm, National Savings & Investments, slashed rates last week by more than the cut in Bank rate, giving it some of the worst products on the market, writes Jennifer Hill.
NS&I — which has attracted billions of pounds in cash due to its 100% guarantee — cut rates on most of its variable-rate savings by up to 0.75 points following January’s half-point Bank rate cut.
It has yet to pass on February’s half-point cut — meaning more reductions may be in the pipeline.
NS&I attracted £5.7 billion of savers’ cash in the second quarter of the current financial year, bringing its half-year total to £9.7 billion. It holds £88.9 billion of consumers’ cash and expects to contribute £11 billion to government funding in the 2008-9 tax year.
That figure was revised upwards from just £4 billion in the pre-budget report amid a flood of new business.
Under the changes, which came into force last Thursday, returns on NS&I’s income bonds fell 0.75 points to just 1.2% for those with less than £25,000 saved. Cash Isas fell by 0.5% to 0.9%, while easy access savings rates also dropped half a point for savers with £25,000 or more to a top 0.7% for the biggest balances. Those with less than £10,000 will now receive just 0.3% after a 0.15 point cut.
Andrew Hagger at moneynet.co.uk said the move meant NS&I’s rates were “way off the pace” of the rest of the industry. “It makes you question whether NS&I has any appetite for retail savings,” he said. “Those savers who flocked to NS&I as a safe home for their money at the time of the Icesave collapse are now paying a hefty premium for that peace of mind.”
From: Times