Inflation-busting bond launched
The Epsom-based society has a 2nd Issue of its Index-Linked Savings bond paying 50% more than the inflation rate at the end of the five-year term. The bond, minimum investment £1,000, runs to 1 December 2015.
The return is taxable but basic-rate taxpayers will still come out ahead of the rise in the cost of living, as measured by the Retail Prices Index (RPI).
Meanwhile competition is still strong in the cash Isa market. Santander has launched a new version of its Flexible Isa – issue 3 – paying a tax-free 2.85%.
You can't transfer existing cash Isas into this easy access account. The rate will track base rate for the first 12 months - but guarantees at least 2.85% during that time.
Halifax’s new easy-access Isa Direct Reward pays 2.8%. The rate is variable and the preferential deal lasts for the first year you are in the account. After that your return drops to match the Halifax Isa Saver Direct rate, currently 0.5%.
On taxable fixed-rate deals, Sainsbury’s Bank has a new one-year bond at 3% before tax (2.4% after tax). It also offers 3.5% (2.8%) for two years or 4% (3.2%) for three years on a minimum £5,000. Tesco Bank is also paying 3.5% (2.8%) for two years on £2,000 plus.
On taxable easy-access accounts Halifax has raised the rate on its Guaranteed Saver Reward to 2% (1.8%) for new savers, making it an attractive high-street easy access account. It pays a higher preferential rate for a year, after which you earn the Guaranteed Saver rate, currently 0.5% (0.4%).
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.
Replaced as the official measure of inflation by the consumer prices index (CPI) in December 2003. Both the Retail Price Index and CPI are attempts to estimate inflation in the UK, but they come up with different values because there are slight differences in what goods and services they cover, and how they are calculated. Unlike the CPI, the RPI includes a measure of housing costs, such as mortgage interest payments, council tax, house depreciation and buildings insurance, so changes in the interest rates affect the RPI. If interest rates are cut, it will reduce mortgage interest payments, so the RPI will fall but not the CPI. The RPI is sometimes referred to as the “headline” rate of inflation and the CPI as the “underlying” rate.
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.
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.