Savings update: more pain for savers with interest rate cut on the horizon
Savers were seemingly given a stay of execution last week when the Bank of England left base rate unchanged at 0.5% rather than cutting it to 0.25% as widely expected.
But the drop could easily come next month which could lead to even lower savings rates.
Currently, the top easy-access rate is 1.45% before tax (1.16% after) from French-owned RCI Bank's Freedom account.
Virgin Money Defined Access Saver, available both online and through branches, pays 1.26% (1.01%) but you are limited to making three withdrawals a year on this account. If you make more your rate tumbles to 0.5% (0.4%). Internet-based bank Shawbrook pays 1.25% (1%).
The best one-year fixed rate bond comes from online provider Charter Savings Bank at 1.79% before tax (1.43% after tax) or on, the high street, 1.5% (1.2%) from Co-op Bank's Britannia Bond.
Charter Savings Bank pays 1.85% (1.48%) fixed for 18 months or 1.91% (1.53%) for two years.
On tax-free cash Isas, Virgin Money's offers the best one-year deal at 1.3% fixed for a year. For two years you can earn 1.4% with Leeds Building Society or Shawbrook Bank.
The best easy-access cash Isa rate comes from Coventry BS at 1.3% but you can't transfer your existing cash Isas into this account. Virgin Money Defined Access Isa pays 1.26% and accepts transfers.
This article was originally written for our sister magazine, Money Observer.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.