Is the end nigh for +7% saving rates?
After months of attractive fixed-rate bonds, the tide may suddenly be turning and saving accounts with interest rates of over 7% are starting to vanish.
Birmingham Midshires and Bank of Cyprus have both pulled their
one-year fixed-rate bonds, which both boasted interest rates of over 7%
Experts say the days of such competitive deals could be over.
Kevin Mountford, head of savings at moneysupermarket.com, says: "It
had to happen sooner or later and it looks like things may have gone
‘pop' for fixed-rate bonds. After months of providers outbidding each
other to top the table, the top two, Birmingham Midshires and Bank of
Cyprus, have withdrawn from the game by pulling their best rates, which
is bitterly disappointing for savers."
One reason for the rates being pulled could be the falling cost of
wholesale funding. Banks have been offering generous rates on savings
in order to bring in customers - and their money - but the falling cost
of funding from other banks has eased pressure on their margins and
made it harder to them to maintain such high rates.
"Birmingham Midshires and Bank of Cyprus are unlikely to be the only
providers that decide enough is enough, and I fear that the days of 7%-plus fixed-rate bonds could be numbered," adds Mountford.
In light of this, those looking to secure a good fixed-rate account should act now.
SAGA currently comes out top of the fixed-rate savings league,
offering an online account paying 7.12% AER for one year. You only need
£1 to open this account, but you'll need to be aged over 50 to qualify.
For younger savers, FirstSave offers a one-year fixed account at
7.1% AER - you'll need a deposit of £1,000 upfront though. Icesave has
a one-year account at 7.06% but again you'll need £1,000 upfront.
Both Anglo Irish Bank and the Post Office have one-year bonds
paying 7.05% AER, on deposits of £500.
If you are happy to fix for longer, then West Bromwich offers an
online account paying 7.12% until 31 June 2010 on deposits from £1,000
while Icesave pays 7.06% for either two years or three years, on
deposts from £1,000.
FirstSave also offers a two-year or a three-year account, both paying 7.1% on £10,000 deposits.
If you are after a fixed-rate account, you might want to consider
ICICI Bank's HISAVE Term Deposit account, which pays 7% AER for
one year or 6.7% AER for six months. But you'll need to have an ICICI
HISAVE savings account to qualify for this deal.
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.