Money news, advice and predictions for savers and spenders. This week: how savers can stay afloat.
By Jeremy Gates
Millions of savers are breathing a sigh of relief at the decision by the Monetary Policy Committee (MPC) of the Bank of England to leave the base rate at 0.5% this month - the first month since September to escape a rate cut.
But life hardly gets easier for those needing income from savings. Investec Private Bank says almost 1.5m older people depend on interest from savings for more than 10% of annual income and nearly 600,000 rely on savings interest for at least a fifth of their income.
There is little chance of an early bounce in rates. Ray Boulger at mortgage broker John Charcol, thinks the 0.5% base rate will hold through 2009, and probably into 2010, depending on the strength of economic recovery.
"Unchanged rates are a minuscule crumb of comfort if you compare today's savings rates with those applying last October," says Andrew Hagger at www.moneynet.co.uk.
"At that time, before six consecutive monthly base rate cuts, someone with a £50,000 nest egg - perhaps secured by buying a smaller home - received annual income of £2,584 (net of 20% tax) in a one-year fixed rate bond at an average 6.46%.
"That same person now faces a drastically reduced annual return of just £1,112 (also net of 20% tax) at an average rate of 2.78%. Facing a monthly loss of £122, many relying on savings income will dip into capital to make ends meet."
Millions are sloshing around in search of decent rates: Close Brothers closed a two-year fixed term Premium Gold account paying 4.3% on minimum £10,000 deposits within 10 days, and says a new Premium Gold Account - at a lower rate - follows shortly.
Investec High 5 - a three-month notice account based on the average of top five rates on Moneyfacts.co.uk website - currently pays 3.17% AER on minimum balances of £25,000. Interest is paid monthly, or credited to the account.
At Cater Allen Private Bank - another arm of Abbey owner Santander - two and three-year Savings Bonds on minimum £5,000 deposits offer 4.11% AER. After one and two years have elapsed, savers can get out with no penalty.
Boulger says savers must stay flexible.
"To lock money away now at rates fixed for 3-5 years is not sensible. It is a gamble that rates won't go up again significantly within that period."
Boulger advises savers to go for Instant Access accounts paying 3%-plus, usually including a bonus.
Kevin Mountford, head of banking at moneysupermarket.com says savers should not accept returns near the 0.5% base rate when banks have to attract savers' cash.
He urges them to find accounts paying a bonus for a specified period - usually the first year - and to move fast when the bonus expires. Some bonus rates are not fixed, however, and can be cut at short notice.
His top five Easy Access accounts include ING Direct (3%, with 2% bonus for year); Citibank Flexible Saver Issue 4 (2.76%, 1.50% ); Egg Savings Account (2.50%, 1.25%); Alliance & Leicester Online Saver Issue 4 (2.50%, 1% until June 2010); and Abbey eSaver Direct (2.50%, 1.25%.).
Best Cash ISAs are Barclays Golden (3.61%, 1% bonus); Abbey Reward (3.50%, 2%); Marks & Spencer Advantage (3.10%, 1%). All are fixed rate, except Abbey's.
At Moneyfacts.co.uk, Michelle Slade says the crisis is showing that building societies pay better rates than banks: Tipton & Coseley BS's ISA tops the Cash ISA league table over 18 and 36 months.
Sainsbury's Finance Internet Saver takes top spot in the internet savings market for the fifth quarter running. But ICICI Bank's HiSAVE account, paying 2.43% gross, is the most consistent account over the last 18 months.
Consistent top two performers - over 18 and 36 months - in the No Notice savings account league are Beverley BS and Teachers BS, while Teachers BS impresses on notice accounts (without bonus) too. (Teachers BS savings accounts are open the public, while its mortgages go only to teachers).
Younger savers building a lump sum should use the regular saver ISAs if their income is secure: First Direct, the online bank, offers a 7% rate, fixed for a year, for savers paying in £25-£300 per month.
If one monthly payment is missed, however, the rate reverts to 3.06%.
Principality BS offers a 5% fixed rate, on regular monthly savings of £20-300, up to the maximum permitted ISA level of £3,600. If a payment is missed or a withdrawal required, the rate falls to 0.6%.
:: Information: Cater Allen Private Bank (0800 028 1200); Investec High 5 (0845 366 6333 and www.investechigh5.co.uk); Close Brothers (0207 392 1772 and www.closetreasury.co.uk/premiumgold).
:: An unexpected rally in sterling has seen the pound hit its highest point against the US dollar in three months, as it gamely claws to a $1.50 exchange rate, a 10% revival in the past five weeks since early-March.
Over the same period, the pound bounced by a similar margin against the euro too, up from 1.04 to 1.13.
What's driving this recovery, given UK unemployment is widely expected to top three million? Essentially, big banks in America and Britain seem to be securely propped up against future crises, so investors feel safe enough to move back into equities.
John Dolan at No1 Currency, which has 250 currency bureaux throughout the UK says the dollar was the safe haven currency in the past six months, but that is weakening slightly as we get a rise in risk sentiments in both UK and US equity markets.
"In Europe, there is a perception the European Central Bank (ECB) must soon cut rates and embark on quantitative easing - boosting money supply - we are already seeing in Britain."
In the next six months, Dolan expects the pound to continue to edge towards its long-term average against the euro, with an exchange rate of 1.25-1.27. It may be sensible to delay buying euros for that summer holiday.
As regards to the dollar, however, dealers are less sure about prospects for British travellers.
Nick Fullarton at FC Exchange says the strength of the dollar is harder to predict.
"There seems to be resistance against sterling at $1.50, so it might be better to buy dollars now for travelling in a few months' time."
At ICE (International Currency Exchange), spokesman Andrew Hamilton says knowing what cash you can bring back is as important as buying for the outward journey.
"Many holidaymakers get caught out by coming home with currencies that their High Street bank won't buy back, leaving them with drawers full of essentially worthless notes," he says.
"There are a number of currencies what could trip up travellers, so it's really worth doing some research before exchanging money."
:: Information: FC Exchange (0207 989 0000); No 1 Currency (0800 840 2889); ICE highlights dos and dont's of buying foreign currency on www.iceplc.com.
Poundnotes
:: After peaking at 8.88% in March, personal loan rates have dropped back for the first time since August 2008, says Tim Moss at Moneysupermarket.com, who reckons the average APR has fallen to 8.68% in the past week.
"The clampdown on the sale of payment protection insurance (PPI) caused providers to hike up prices to recoup lost revenue," Moss says.
"Let's hope that the rate reductions we have seen recently are just the beginning and that we see more providers keen to attract new customers in the months ahead."
:: Although the Scots are the best savers in Britain - saving £236 or an average 45% of disposable income each month - they are pretty poor at finding the savings accounts paying better rates of interest, says a survey by ICICI Bank, a subsidiary of the Indian bank. It runs HiSAVE Savings, an easy access account which guarantees to top Base Rate by at least 0.30% until December 2011.
The survey says savers in the Midlands and Wales are least knowledgeable of the lot about the rates which their savings are earning - whilst Londoners are savviest, with 10% of savers in the capital confident they are getting 1.50% on their savings. But Londoners haven't actually got much spare cash left to boost savings.
Despite recent cuts, the HiSAVE two-year fixed rate account continues to pay 4.10%AER. Further details available on www.icicibank.co.uk.
:: If you are slow to reinsure your car, the chances of a policeman flagging down your car are rising.
AA Insurance says the number of uninsured vehicles stopped by police soared to 170,000-plus in 2008, against 78,000 in 2006.
Simon Douglas of AA Insurance says this success follows the national roll-out of automatic number plates recognition (anpr) systems on police cars, which continuously check registration numbers which come into its field of detection.
"It instantly compares them against data provided by the Motor Insurers Database (MID) and alerts officers if there isn't a match."
The moment a policy expires, it is deleted from the MID, Douglas says.
"If you're late renewing, or take out a new policy after an existing one has lapsed, or if you buy a new car, it can take three or four days before details of the new policy are updated."
Despite the crackdown, leading car insurance comparison site Gocompare.com says five million UK motorists - that's one in five - could overpay for car insurance by as much as £1bn this year, and will have little idea how much they could save unless they use comparison websites.
"Hundreds of thousands of motorists still mistakenly believe that because their insurer gave them a great deal in the past, they are bound to be still competitive now," says Hayley Parsons at Gocompare.com.
:: Even children are hit by the credit crunch, says Pocket Money Purse, a survey of pocket money compiled by the pfeg (Personal finance education charity).
With the weekly total of pocket money topping £2.1bn, that means the average child receives £6.32 pocket money per week, with parents in East Anglia apparently the stingiest (41% of them have already made pocket money cuts.)
Children in the north of England may see their income falling fastest from now on, with 76% of parents in the north-west and 75% in the north-east admitting they find it harder to hand out pocket money in the downturn.
:: High Five Savers:
Phone No Rate Account Period Deposit Interest paid
Halifax www.halifax.co.uk 4.30% Web Saver Five Years £500 Yly
West Bromwich BS www.westbrom.co.uk 4.30% E Bond 21 31/05/10 £5,000 Yly
ICICI Bank UK www.icicibank.co.uk 4.10% HiSAVE Fixed Rate 24 Month Bond £1,000 OM
Manchester BS 0161 923 8015 3.56% Premier ISA 45 Issue 1 45 days £1,000 Yly
Barclays Bank 0800 494 949 3.55% Golden ISA Instant £1 Mly
:: Top Five Borrowers:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494 999 2.49% discounted for two years 60% £249 Yes
First Direct 0845 610 0100 2.89% variable for term 80% £799 Yes
HSBC 0800 494 999 2.95% variable for term 60% £799 Yes
Hanley Economic BS 01782 255 000 3.14% for two years 80% £799 Yes
Co-Op Bank 0800 633 5286 3.64% to 31/03/12 75% £995 Yes
Code:
*F - Fixed
*P - Operated by Post
*B - Operated by Post/Telephone
*T - Operated by Telephone
*W - Operated by Internet
*H - Operated by Internet/Telephone
*S - Available only to those aged 50 or over
*R - Available to those aged 60 and over.
:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice)
