Savers offered new account with guaranteed rate for life
Bradford & Bingley has launched a range of saving accounts that offer a guaranteed rate of interest for life.
The three accounts will match the Bank of England base rate – currently 5% - plus 0.25% AER a year for life. Savers need to deposit at least £1,000 upfront extending to a maximum of £500,000. All the accounts allow savers to make additional deposits, and withdrawals are also permitted without the need to give prior notice.
Savers can choose an online, branch or postal version of the account.
Paul Whitlock, head of savings at Bradford & Bingley, says the ‘Rate For Life’ saving accounts come with no hidden catches or gimmicks.
“In a fast changing market, savers can be assured that their money will always earn an attractive rate of interest for life," he adds.
But what do the experts make of these accounts – and should savers be rushing to open one?
Kevin Mountford, head of savings at moneysupermarket.com, agrees the range will appeal to people who don’t want the hassle of shopping around regularly for the best rates.
But he warns that they aren’t for everyone: “Any fixed rate has to be eye-catching and in the current climate I do not feel that 5.25% will be enough to attract many people's attention.”
This is especially true if you are a basic-rate tax payer, as after the taxman claims his slice of your savings the net return only just keeps up with inflation. In contrast, there are several of accounts on the market right now that protect your money from inflation.
The other issue to consider with Bradford & Bingley’s Rate for Life accounts is that although the rate could increase inline with base rate, it could also decrease.
Sean Gardner, director at MoneyExpert.com, says: “By offering a guarantee of 0.25% interest above base rate savers know what they're in for and unlike many of the other savings accounts on the market - which have spectacular headline rates but only on smaller balances - this rate is guaranteed right the way up to £500,000.”
However, he adds that with almost 60 accounts on the market currently paying at least 6% AER, savers should consider whether a Rate for Life account will serve their needs for the short and long term.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.