Five top fixed-rate savings deals
Savings providers are on the verge of pulling their top fixed-rate deals in light of the Bank of England base rate cut in March.
On Thursday 5 March the central bank’s Monetary Policy Committee (MPC) voted to cut the base rate to just 0.5%, its lowest ever level.
Six months of base rate cuts mean savers have increasingly been opting for fixed-rate accounts where they know they can earn a guaranteed rate of interest.
However, savings providers have been continually pulling and tweaking rates to reflect the historically low base rate – meaning returns are growing smaller by the day and deals are vanishing all the time.
Average fixed-rate AERs have plummeted from nearly 6% to just 2.35% since October, the Bank of England revealed last month. But there are still several fixed deals out there that promise a much better return on your cash.
Here are five of the best fixed-rate savings deals currently available:
1. Abbey recently stormed into the best-buy tables with a two-year fixed-rate bond paying 4.01% AER.
The deal, which pays interest on a monthly or annual basis, can only be opened via an Abbey or fellow Santander-owned bank, Alliance & Leicester, branch – but it is only be available while funds last.
Withdrawals are subject to penalty with this deal, so you must be prepared to lock your money away for two years. Also, bear in mind the minimum deposit needed to open an account is £30,000.
If you opt for your interest to be paid monthly, you won’t benefit from compounded interest and, therefore, the interest you’ll actually earn is 3.94%.
2. If you have less to save, then ICICI Bank’s HiSAVE account now pays up to 4.1% AER on deposits from £1,000.
This deal is fixed for two years, but ICICI also pays 3.9% AER on it HiSAVE 12-month fixed-rate deal.
Neither of these accounts allow early access withdrawals and interest is paid at maturity.
3. Bank of Cyprus UK offers a three-year fixed account paying 3.9% AER on deposits from £1 or a two-year bond paying 3.8% AER. Withdrawals are not permitted within the term of the account.
The UK arm of the Bank of Cyprus is a member of the UK’s Financial Services Compensation Scheme and the equivalent deposit protection scheme in Cyprus. Between the two schemes, British savers are protected up to £50,000.
Technically, this means that if the Bank of Cyprus was to fail, you would have to claim 90% of your money back from the Central Bank of Cyprus Deposit Protection Scheme, up to a maximum of €20,000. You would then have to reclaim your remaining balance, up to £50,000, from the FSCS.
4. Chelsea Building Society recently launched a new version of its Winter fixed-rate account. This short-term deal requires a £1,000 upfront deposit, and pays 3.78% AER until 2 October 2009. You can opt for annual or monthly interest, and access is possible via branch or by post.
Withdrawals are permitted but you will be hit with a penalty equivalent to 180 days’ loss of interest on the amount withdrawn.
Chelsea also offers a selection of fixed-rate accounts paying 3% AER. You can fix for 12 months, two years or three years. Again, you’ll need £1,000 to deposit upfront to qualify, and withdrawals come with a 180 days’ loss of interest penalty charge.
5. Investec Private Bank’s High 5 savings account is aimed at people not only looking for a top rate, but also a consistent one. Currently paying 3.54% AER (correct 2 March 2008), this rate changes on a weekly basis to reflect other savings accounts in the market as the High 5 deal promises to always be the average of the top five best-buy savings accounts.
This account, while offering savers the ability to get a top rate without having to constantly shop around, won’t be for everyone. For a start, you must have at least £25,000 to deposit in order to open this account. And although withdrawals are permitted, you must give three months’ notice before you can access your money.
Monetary Policy Committee
A committee designated by the Bank of England to regulate interest rates for the UK. The MPC attempts to keep the economy stable, and maintain the inflation target set by the government and aims to set rates with a view to keeping inflation at a certain level, and avoiding deflation. The MPC meets on the first Thursday of each month and discusses a variety of economics issues and constitutes nine members: the governor, the two deputy governors, the Bank’s chief economist, the executive director for markets and four external members appointed directly by the Chancellor.
The Financial Services Compensation Scheme is the compensation fund of last resort for customers of authorised financial services firms. If a firm becomes insolvent or ceases trading, the FSCS may be able to pay compensation to its customers. Limits apply to how much compensation the FSCS is able to pay, and those limits vary between different types of financial products. However, to qualify for compensation, the firm you were dealing with must be authorised by the Financial Services Authority (FSA).
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.