Great Easter savings deals
Make the most of the Easter break by finding a better home for your savings.
The latest figures from the Bank of England show that the average savings account continues to pay dismal returns. Instant access deals paid just 0.19%, on average, in March, down from 2.47% last year. Fixed-rate deals, meanwhile, paid 2.65% - down from 4.95% in March last year.
Other figures, from data provider Defaqto, show that 60% of all instant access deals pay less than 0.5% AER on a balance of £1,000, while 50% pay less than 0.25%.
However, while average rates look pretty dire, best-buy rates do continue to hold up. So, if your savings have been hit by falling interest rates, what better time than the Easter weekend to start looking for a new deal?
The best rate on fixed accounts at the moment is from Halifax. Its Websaver account pays 4.3% AER on deposits of between £500 and £9 million. No withdrawals or further deposits are allowed.
The catch with this account is that in order to earn 4.3% interest you must be prepared to lock away your cash for five years. Over that time, interest rates on new savings account are likely to increase so you could lose out.
Halifax’s Websaver range also offers a three-month fixed-rate deal paying 3% AER on balances over £100,000, or 2.2% AER on balances of £500.
Its 12-month bond, meanwhile, pays 3.4% on balances of £500, or 3.5% if you have more than £50,000 to deposit upfront.
Elsewhere, ICICI Bank pays up to 4.1% AER on its HiSAVE two-year fixed account or 3.9% AER on its HiSAVE 12-month deal. Both bonds require a deposit of £1,000.
These accounts do not allow early access withdrawals.
Cater Allen Private Bank, which like Abbey and Alliance & Leicester is owned by Spanish bank Santander, offers two accounts that pay up to 4.11% AER.
The first is fixed for two years and pays 3.68% AER for anyone with between £5,000 and £50,000 to deposit. The rate increases as your balance does; deposit more than £50,000 (the maximum amount that is protected by the Financial Services Compensation Scheme) and your rate will rise to 3.85% AER.
If your balance is more than £250,000, the rate rises again to 3.92% AER and if you have £1 million to save, you’ll earn 4%.
Cater Allen’s three-year bond, meanwhile, pays 3.85% for anyone with between £5,000 and £50,000 saved; 4% for anyone with £50,000 to £250,000 deposited; 4.08% if your balance is between £250,000 and £1 million; and 4.11% if you have a balance of £1 million plus.
Close Brothers, meanwhile, offers a two-year Premium Gold fixed-rate account that pays 4.3% AER on deposits of between £10,000 and £10 million. This deal is only available until 8 April.
No early withdrawals or additional deposits are permitted with this deal.
For people with less to save, Nationwide recently launched an account paying 4.15% AER - but you will have to lock your money away for five years.
West Bromwich Building Society offers an E Bond also paying 4.15% AER until 31 April 2014 for anyone with at least £5,000 to deposit. Or it pays 4.1% on deposits of £5,000 until 31 April 2012.
Withdrawals or additional deposits are not permitted with either of these deals, and you can only manage your account via post or the telephone.
If locking away your money isn’t for you, then a no-notice deal might be more suitable for you. These allow you to access your cash and also make further deposits. However, the interest you earn is variable and could decrease (or rise) down the line, so there is an element of risk involved.
Watch out for withdrawal restrictions – not all instant access accounts allow unlimited withdrawals and some may hit you with a penalty.
For example, Manchester Building Society pays a very competitive 3.26% AER on deposits of £1,000 with its Premier Guarantee account. But this deal only allows six withdrawals each year - any more, and you'll face a penalty or fee.
ING Direct, meanwhile, pays 3% AER, including a fixed 12-month bonus of 1.47%, on its variable-rate savings account. You can open this deal from as little as £1, and there are no penalties or restrictions when it comes to accessing your money.
This deal is only for new customers - plus, interest is paid monthly so you won't benefit from compound interest.
If you want to make withdrawals but are happy to give your bank or building society notice before you do, then you could get a better rate. FirstSave currently pays 3% AER on its 90-day notice account, which can be opened from £100. You can opt for monthly or annual interest payments, but you must have a balance of at least £5,000 for the former option.
Secure Trust Bank, meanwhile, pays a slightly more attractive 3.15% AER on its 60-day notice deal on deposits from £1,000. Bear in mind that you can only make three withdrawals a year from this account.
Regular savings accounts
Accounts that allow you to make monthly deposits are looking competitive at the moment. Barclays offers a regular savings account paying 6% AER on monthly deposits between £20 and £250. This interest rate is fixed so you can be confident it won’t fall if base rate does.
However, interest is paid monthly so your net interest rate is actually 5.84%. And if you make a withdrawal from this account then your AER will fall to 3.03% (2.99% net) for that month.
After 12 months this account will switch to an instant access account, so you’ll probably want to review at this time. Plus, you can only save up to £3,000 in this account.
Abbey, meanwhile, pays up to 4% AER on its fixed-rate Monthly Saver. You’ll need to deposit between £20 and £250 each month – any more or less and your rate will fall to just 0.1% AER for that month only.
Bear in mind that you’ll only earn 4% if you don’t make any withdrawals. If you need to access your cash your rate will fall to 3.67% AER.
A savings account on which the account holder is required to give a period of notice before making a withdrawal or face a penalty, usually a loss of a specific number of days’ interest or pay a fee. Notice periods of 30, 60 or 90 days are common. These accounts usually pay higher than average interest rates and require large initial deposits (£1,000 minimum) so the notice period and penalties are there to discourage withdrawals. Some of these accounts will only allow a certain number of withdrawals a year.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
This is effectively paying interest on interest. Interest is calculated not only on the initial sum borrowed (principal) or saved (see APR and AER) but also on the accumulated interest. The more frequently interest is added to the principal, the faster the principal grows and the higher the compound interest will be. Compound interest differs from “simple interest” in that simple interest is calculated solely as a percentage of the principal sum.
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.
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.