Monthly commentary on current savings rates and outlook.
News
According to Which? Magazine, British savers are losing £12 billion in interest by leaving their savings in accounts that pay minimal amounts. Many savers are accepting rate as low as 0.1% or 0.5% which underlines the point that we made in September – savers should be careful with ‘bonus’ rate accounts. These provide initially attractive headline rates before reducing after 12 months to very low levels and savers will therefore need to switch on or soon after the anniversary date.
National Savings & Investments (NS&I) have confirmed that existing savers in their Guaranteed Growth Bonds, Guaranteed Income Bonds, Index-Linked Savings Bonds and Fixed Interest Certificates will be able to renew these upon expiry. For those invested in the Guaranteed Income Bonds and Index Linked Fixed Interest Savings certificate this represents a good opportunity as these rates are not obtainable elsewhere.
Savings Rate Outlook
The Monetary Policy Committee held the interest rate at 0.5% for the 20th consecutive month in October whilst the September CPI figure remained at 3.1% for the 2nd month in a row. Very little new data has been published to provide any direction and the inflation vs. deflation debate continues; whilst printing money (Quantitative Easing) should theoretically lead to inflation the spare capacity in the economy is significant and therefore, in the Bank of England’s view, likely to absorb these inflationary pressures. We don’t expect interest rates to change much over the coming months.
The yield on UK Government bonds remains below 3%, historically low; indicating inflation is not the markets’ greatest concern at the moment.
Best savings rates
We are confident that inflation will not be an issue in the short term, although beyond a couple of years it is very difficult to forecast what will happen. Below are the best savings rates over various time periods.
- Instant Access ISA - Santander Flexible ISA Saver Issue 3 is paying 2.85% gross. For basic rate tax payer this is a grossed up equivalent rate of 3.56% and 4.75% for higher rate taxpayers.
- Variable Rates - All the best paying accounts have bonus rates attached that expire after 12 months, after which the interest received is very low, and banks are counting on you forgetting to switch. The best rate currently available is Natwest e-savings at 2.85%, 1.85% of which is a bonus rate.
- Fixed Rate Bonds - After tax these remain below the current rate of inflation (CPI is 3.1%) unless you are willing to tie the money up for three years if you are a basic rate tax payer and five years if you are higher rate taxpayer. However, with the outlook for inflation so uncertain we do not recommend anything beyond 3 years. The best rate currently on a three year Bond is 3.5% from Kent Reliance BS, although Saga offer 3.75% for a three year bond for those over 50.
Whilst the base rate remains low and bank lending continues to be at depressed levels those that require a higher level of interest from their savings to supplement their income may have to draw on their savings, sacrifice liquidity or invest their money.
For more information on savings accounts please go to our Income rates on the website. To discuss alternative options to cash please call one of our Investment Professionals on 020 7189 9999.