Savings update: rates drop yet again with interest rate cut expected
Rates are falling fast ahead of the expected cut in Bank of England base rate from 0.5% to 0.25% later this week. Big banks pay less than 1% on fixed rate bonds and cash Isas for a year.
The top one-year fixed rate cash Isa comes from Virgin Money at 1.3% while for two years Paragon Bank's new deal pays 1.5%.
On easy-access Isas, Coventry Building Society pays 1.3% but you can't transfer your existing cash Isas into this account. Best deal for transfers is Family Building Society at 1.22%.
On easy-access taxable accounts French-owned RCI Bank Freedom account still pays 1.45% before tax (1.16% after).
In this account you are covered by the European deposit protection scheme which gives you €100,000 (around £84,000) of cover rather than our own Financial Services Compensation Scheme (FSCS).
Internet-based Shawbrook Bank pays 1.25% (1%) and you are covered up to £75,000 by the UK FSCS. On the high street, the best rate comes from Coventry Building Society at 1.15% (0.92%).
On fixed rate bonds the top one-year deal comes from internet-based Charter Savings Bank at 1.66% (1.33%).
Virgin Money Champion Bond pays 1.25% (1%). The bank will double the rate to 2.5% (2%) if Manchester United wins the Premier League.
On the high street the top deal at 1.25% (1%) comes from Leeds Building Society. For two years Paragon Bank pays a top 1.8% (1.44%) and Leeds Building Society 1.4% (1.12%).
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.
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).
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.