Top rates to kickstart the New Year savings habit
There are several new top paying fixed-rate savings accounts on the market.
Firstsave has launched a one-year fixed-rate bond at 3.25% before tax (2.6% after tax), available over the internet.
The rate puts it marginally ahead of Barnsley, part of Yorkshire Building Society, which last week put the rate on its one-year telephone and internet-based bond up to 3.2% (2.56%) for new savers.
Other good deals include Northern Rock at 3.15% (2.52%), which is fixed until 20 January 2012.
Banks and building societies change the rate they pay to new fixed-rate savers frequently, as they use these bonds as a tap to attract money in, and turn if off when they have pulled in sufficient funds.
It means savers have to be extremely vigilant when signing up for a deal. Last week both HSBC and Norwich & Peterborough dropped the rate they pay to new savers on their one-year bonds.
Even these top rates of interest are bad news for savers, with inflation, as measured by the Retail Prices Index, currently at 4.7%.
Basic-rate taxpayers need to earn 5.87% before tax just to match the rise in the cost of living, while 40% taxpayers need 7.83%.
The top rate on offer from mainstream banks and building societies is 4.75% (3.8%) on a five-year fixed-rate deal from Coventry Building Society.
Leeds Building Society's new Online Access 3 account pays 2.55% before tax (2.04% after) and you have easy access to your money without penalty at any time. The rate includes a 0.5 before-tax percentage point bonus paid until 31 January 2012.
It is available for new and existing customers.
The building society also launched two fixed-rate bonds yesterday. The three-year bond pays a competitive 4% while the five-year bond pays 4.5%.
An extra perk is that they allow customers access to 25% of the funds without notice or a penalty at any time.
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).
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.