Savers filling building society coffers with cash since bricks and mortar and shares lost their attractions have an unexpected headache: rates paid on savings are hitting levels unthinkable when borrowers ruled the roost.
By Jeremy Gates
Savers filling building society coffers with cash since bricks and mortar and shares lost their attractions have an unexpected headache: rates paid on savings are hitting levels unthinkable when borrowers ruled the roost.
"Cash is really king right now," says Linda McBain at Investec Private Bank.
"Despite two Bank base rate cuts this year, savings rates keep increasing. The 6.47% rate on our High 5 Account has only been topped only once - at 6.5% in December 2007 - in five years since the account started."
Andrew Hagger at Moneynet.co.uk agrees: "With many institutions turning to retail savings as a source of funds rather than money markets, savers are getting some of the best rates in seven years," he says.
Investec is cutting the term on money held in the High 5 from a year to three months. Savers can have their money even sooner, if they accept a penalty of 0.5% of sum withdrawn inside the three-month deadline.
Meanwhile Barclays is the latest pacemaker in the sector: its Monthly Savings account pays a fixed 7.49% gross for one year on maximum saving of £250 a month, or £3,000 a year.
Says Barclays head of saving Lee Chiswell: "The Monthly Savings account follows the trend of our Tax Haven ISA, which has regularly featured in best buy tables since its launch in March.
"We want Barclays to be the first bank to come to mind when people think seriously about saving."
Barclays' account allows withdrawals during the 12-month period - although the rate falls to 3.03% on the entire account for a month prior to the withdrawal.
Longer-term savers might prefer Barclays Tax Haven ISA, which continues to pay 6.50% AER, not least because the Cash Mini-ISA limit rises to £3,600 in this financial year.
Almost every week brings eye-catching new deals for savers: last week First Save promised 7.10% gross on minimum £1,000 deposits over one, two or three years, while the Principality BS nine-month fixed rate bond promised 6.85% gross on minimum £5,000 deposits.
Hagger tips a new six-month fixed rate bond from the Bank of Cyprus paying 6.7% gross (6.81%AER).
For instant access accounts, he likes Kaupthing Edge at 6.50% AER from £1,000 and Birmingham Midshires at 6.50% AER from £1.
Kaupthing Edge promises savers 7.01% gross on a minimum £1,000 locked up for a year - or 6.85% gross on the six-month account.
Some offers created to top 'best buy' league tables have a short shelf life.
Investec claims 51 different accounts held top six positions in the Best Buy savings tables in the year to April 2008 - and only the Investec High 5 made the top six for all 52 weeks.
The second-best performer was Northern Rock Silver Savings Online Account (24 weeks), while Heritable Bank's 90-Day Notice Account Issue 6 (18) came third.
Given the hassle involved in switching accounts, made worse by new controls to beat money laundering, it is likely that many savers won't enjoy the best-paying rate for long.
That's how the Investec High 5 Account comes into its own: its rate is calculated weekly as the average of the top five best buy accounts listed by Moneyfacts.co.uk. The calculation takes bonuses into account although most are dropped within months.
Sean Gardner, founder of MoneyExpert.com, likes the High 5 Account: "It is very attractive as it pays the average of the top five accounts, and it has just got better."
However, to open an Investec High 5 account savers need a minimum £25,000 to set aside for at least the medium term.
Such are the fears induced by the credit crunch that more and more savers can hit that threshold - some of them probably homeowners "going liquid" in anticipation of buying a home more cheaply when the crisis has blown over.
"We see £25,00O as a good benchmark. Beneath us, there's a decent range of options for most savers at various thresholds," McBain says.
A survey last month (April) by financial data specialist Moneyfacts.co.uk found that consistently good providers stand out at lower level of the savings market.
Sainsbury's Bank, for example, scores highest in Internet Savings, while National Savings and Investments (NS&I) retained a top spot over 18 months with its Direct ISA, and Yorkshire BS leads the way over 36 months with its e-ISA.
Among both Notice and No Notice Savings accounts, Anglo Irish Bank was an outstanding performer over 18 and 36 months.
Cautious savers are also tempted by the range of Growth Bonds from the Post Office on minimum £500 deposits over one, three and five years; the rate is 5.25%, 6% and 6% AER, respectively.
Yorkshire BS, paying 6.50% gross on minimum £100 deposits, seems to have positioned itself ahead of Bradford & Bingley's two-year fixed rate bonds (min £1,000), which pay 6.30% gross, or 6.13% for those taking monthly income.
"As banks and building societies buy market share, we can't match their current rates," says Colin Jackson of Baronworth Investments, a financial adviser specialising in handling lump sum investments.
"But what we can offer with our Guaranteed Bonds is exactly that, near total security on money invested - while the bank/building society guarantee is limited to £35,000. That counts with savers holding six figure sums."
Baronworth currently quotes 3.97% net of tax on £50,000 sums, equivalent to 4.96% gross for a basic rate taxpayer and 5.29% gross for higher rate taxpayers.
"Some investors are so nervous about the present situation that they 'park' money with us for six months or a year before deciding whether it is safe to return to banks and building societies," Jackson says.
As a general rule, the AER quoted on savings accounts is higher than the gross figure, because it reflects interest paid on interest during the period of investment.
INFORMATION: Investec High 5 (0845 366 6333 and www.investecprivatebank.co.uk/high 5); Barclays Monthly Savings Account (0845 300 6159) starts June 2; Kaupthing Edge (www.kaupthing-edge.co.uk); Post Office Growth Bonds (0800 169 7500 and www.postoffice.co.uk); Bradford & Bingley (0845 600 8885); Yorkshire BS (0845 1200 100 and www.ybs.co.uk).
POUNDNOTES
:: Rules operated by High Street banks on current accounts are so tight that customers can face fearful penalties if they go into an unauthorised overdraft or make purchases without having funds to cover them, says Andrew Hagger at personal finance website Moneynet.co.uk.
With the average rate for unauthorised borrowing standing at 23.98%, Hagger says that if a bank honours a £50 payment for a customer unable to bring an account back into the black for two weeks, the cost in fees and interest could hit £165.36 on a Lloyds TSB Classic Plus account, or £95 on an Alliance & Leicester Premier Direct Account. Fees and interest would total around £60 with Halifax, Abbey and NatWest.
"If you are sailing close to the wind with an overdraft limit, don't ignore the situation or things will deteriorate further," Hagger says.
"Get down to the bank or give them a call - it's got to be better than being hit with additional fees and interest you can ill afford."
:: M&S Money aims to boost its share of a fiercely competitive foreign exchange market, with cash machines ready to dispense Euros and dollars in 40 M&S stores. The new cash machines offer the same commission-free exchange rates as 112 M&S bureaux de change and also its telephone and internet ordering service.
Some cash machines are stand-alone units in M&S Simply Food stores. The machines accept all debit and MasterCard credit cards, and M&S won't charge for withdrawing Euros or dollars.
M&S credit card customers are not charged cash advance fees for withdrawing foreign currency - nor for buying travel money at M&S bureaux, by phone or internet - and get up to 55 days' interest-free credit if they pay the balance off in full each month. The bureaux also offer a commission-free buyback service.
Enquiries: 0800 363 484 or www.marksandpsencer.com/travelmoney
:: The supply of mortgages is drying up faster than the housing market.
Darren Cook at Moneyfacts.co.uk says the number of mortgage products is down from over 15,000 this time last year to barely 3,800, with events changing so fast some only last a few days.
"Lenders with products available experience unprecedented levels of demand, which impinge on their ability to cope and on the company's capacity to provide a good level of service," Cook says.
"To avoid this, lenders withdraw products quicker than before to clear demand bottlenecks."
The problem is particularly serious for 1.4m homeowners expected to remortgage this year. With mortgage offers vanishing rapidly, it becomes harder for them to plan their next move before their existing mortgage has expired.
:: Many long-term investors in managed funds have suffered some gruesomely bad returns, says fund analyst www.Moneyspider.com.
For instance, a £5,000 investment over three years in Virgin's Income Corporate Bond fund grew by just £41.87 during that period.
Legg Mason's Japanese Equity Fund plunged nearly 58% over three years - while AXA Framlington Japan turned £5,000 into £12,070 over the same period.
Investors can't even rely on one and the same fund manager to get things right - Invesco's Japanese Smaller Companies Fund has slipped from £5000 invested three years ago to just £3427.96 today - while Invesco's Latin American fund has turned £5,000 invested in May 2003 into £30,000-plus today.
Tony Aherne at Moneyspider.com says the return of inflation demands better performance from chosen funds. Someone investing £5,000 needs to see growth of at least 3%, or £150, each year to stay even.
He says the best-performing funds include Neptune Russia and Greater Russia; Scottish Widows Latin American, First State Investments Global Resources, Invesco Perpetual Latin American and BlackRock Gold & General.
Enquiries: 01784 264220 and www.moneyspider.com
:: HIGH FIVE SAVERS
Phone No Rate Account Period Deposit Interest paid
FirstSave www.firstsave.co.uk 7.10% (F) Fixed Rate Bond One, Two, Three Year Bonds £1,000 Yearly/On maturity
Heritable Bank 0845 607 1212 6.50% 60 Day Notice Issue 1 60 Days (B) £1,000 Yly
Abbey www.abbey.com 6.50% Instant Access Saver Instant £1,000 Yly
Birmingham Midshires 0845 603 2286 6.35% Guaranteed Reward None (T) £1 Yly
Kaupthing Edge www.kaupthing-edge.co.uk 6.31% None £1,000 Mly
TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 5.43% (FTB) for two years 90% £999 Yes
Principality BS 0845 045 0006 5.58% to 30/06/18 75% £999 Yes
Mansfield BS 01623 676345 5.65% for three years 75% £599 Yes
Skipton BS 0800 446776 5.79% to 30/06/10 95% £799 Yes
Post Office 0800 707 6204 5.89% to 31/05/11 95% £599 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)
