Money news, advice and predictions for savers and spenders. This week: don't despair about your savings, we've found some decent deals.
By Jeremy Gates
The alarming sight in 2008 of banks going bust, and consumers switching millions of pounds to ensure the protection of Government guarantees, may have put people off the idea of saving altogether.
Nationwide BS, launching a new Savings Barometer, says nearly half of consumers (49%) deemed saving to be 'very important' in May. By August, the figure had sunk to 31%.
"With inflation expected to continue to increase this year, consumers may find it even more difficult to save and could be forced to draw on savings", says Nationwide BS.
The problem is that, even before this week's dramatic 1.5% rate cut from the Bank of England, only a few savers were getting enough returns to top a 5.2% inflation rate.
Money was already losing value sitting in a bank or building society. Now rates for savers could follow Bank base rate further down.
Nationwide's Members ISA may beat the taxman - but it pays 4.65% gross above £25,000, just 4.45% gross at £100.
"Six weeks ago, more than a dozen accounts paid more than 7% gross", says Andrew Hagger at finance website Moneynet.co.uk. "Now only three or four are as generous as that, so savers should get decent fixes before rates go lower.
"In the wake of the Bank's decision, savers paying basic rate tax on their interest will be £12 per annum worse off for each £1,000 held in a savings account - if their accounts lose the full 1.5%."
Hagger says savers adopt different strategies, according to age group. Younger people should set aside a monthly sum, from £25 perhaps, to cash in on generous rates paid by regular monthly saving accounts.
On monthly sums of £20-250 for a year, Barclays Monthly Saver offers a fix at 7.49%. On similar sums, Abbey offers 7.25% while Principality BS's Regular Saver at 7% accepts monthly sums up to £500. Each plan runs for a year, to build a decent lump sum.
Would-be homebuyers (aged 16-35) can open an Abbey Home Saver account with a minimum £100 to save £100-300 per month by standing order and enjoy an 8% rate. That only applies to the first 5,000 savers - with a mortgage interview at the end, but savers don't have to take an Abbey loan.
Once savers have something set aside, Hagger says the smart move is to run an internet account, paying a higher rate, alongside a current account which can be topped up online whenever it gets low: AA's Internet Saver pays 6.28%, against Birmingham Midshires 5.83% and Intelligent Finance 5.9%, all on minimum £1 deposits.
With money that can be set aside for the longer term, they can tap into a growing range of products.
:: Individual Savings Accounts (ISAs) - as the limit rises to £3,600 per person per year in 2008/9, the chance of taking interest tax free is too good to miss.
Hagger says ISAs at 6.25% are still available from Bradford & Bingley and Principality BS.
:: Deposit Account. Close Brothers, a UK investment bank, has launched a Premium Gold account paying 7% gross for one year on funds received by November 10, with the rate obviously set to fall after that.
With a minimum investment of £10,000, the scheme could attract investors trying to play it safe in their Self-Invested Personal Pensions (SIPPs).
:: Index-Linked Accounts. National Savings and Investments (NS&I) may have led the way, but other providers are ready to compete.
Newcastle BS has an Inflation Protector account, paying 2.25% gross above Retail Price Index (RPI) on a minimum £500.
Available as a bond or an ISA, it matures on November 25, 2010. An early bird rate of 5.50% applies until the start tracking date on November 25.
:: Fixed Rate Bonds. Anglo-Irish Bank pays 7.06% gross on a nine month bond, and 7.00% over two years, on minimum £500 deposits, while the Indian bank ICICI (fully covered in the UK by the FSA) pays 6.56% on a minimum £1,000 over three years.
Newcastle BS's seven month bond pays 6.35% gross on minimum £1,000 deposits, maturing May 11, 2009.
:: National Savings. The super-safe option, with an index linked account paying 1% over and above RPI on maximum £15,000 per person over three and five years. Provided the certificate is held for least a year, it can be cashed in with some interest earned, which could be useful if the inflation rate falls drastically.
On Premium Bonds, the limit remains £30,000 per person, with prize money pegged at 2.85% APR.
:: Gilts. Money loaned to the Government is seen as super safe, and Mick Gilligan at brokers Killik and Co says demand has boomed since January, with some 70-plus investors holding up to 50% of savings in gilts.
Although rates - typically around 4.5% - are not high, they could improve if inflation falls - and vice versa. A risk is that if Government issues many more gilts to raise cash, it could dent their end value.
Gilligan says gilts tend to be selected by financial advisors. They can be bought and sold at any time, although nearing maturity, they tend to have a lower yield.
:: A Managed Fund. Try to shoot the lights out with Fidelity International's Extra Income Fund, run by fund manager Ian Spreadbury for 'adventurous' investors and mixing 60% investment grade corporate bonds with 40% of racier high yield bonds.
Since March 1999, it has generated a yield of 36.2%, and currently pays an income of 7.36%. But in this market, few things are certain for long.
Other Fidelity funds to challenge the gloom include the Income Plus Fund, aiming for both income and growth, and the Multi-Asset Strategic Fund blending shares with bonds, cash, property and commodities. Initial investment in all three Fidelity funds is a minimum £1,000, and the last two can be held within an ISA-wrapper.
This could be a sensible moment to try a mainstream corporate bond fund, like M&G Corporate Bond Fund, particularly when income can be taken in an ISA-wrapper.
For older people, relying on interest from savings to support their lifestyle, life has become much more worrying lately - especially when AIG, the huge US insurer, teetered on the brink before rescue by the US Government.
"Trust has largely gone out of the window, since major names like Lehman and Halifax went to the wall", says Colin Jackson at Baronworth Investment Services. "We suddenly realised names we know and trust are not as strong as they could be."
Jackson says rates on Guaranteed Income and Growth Bonds (GIBs) are not too attractive up to £50,000 - typically around 4.65%. Savers should keep an investment below £50,000 to keep interest earned also within the Government guarantee.
However, Baronworth has an AIG Guaranteed Growth Bond, available over three, six, nine months or a year, paying 6.08% per annum net of basic rate tax, worth 8.11% gross to a higher rate taxpayer, on minimum £100,000.
Those rates may be reduced in the wake of the Bank's rate cut.
An attractive feature of GIBs is the Government guarantee - 100% on the first £2,000, thereafter 90% with no upper limit.
Baronworth also reports demand for Structured Products, typically over five or six years, promising income or growth, or possibly a mix of the two. Rates can be as high as 8.75% gross - but returns that juicy might mean you don't get back your original deposit.
Baronworth is launching a Defined Income Plan from Keydata; as an example, on a £10,000 lump sum invested for five years, investors could take a £4,900 growth payment after five years, or £4,128 if they prefer monthly income.
At the end, you might also get back your original £10,000 back - but it is not guaranteed.
:: INFORMATION: NS&I (0845 964 5000); Baronworth (0208 518 1218); Fidelity (08457 446 600).
POUNDNOTES
:: Barclays Bank may be facing angry critics for raising some rather expensive billions from investors in Abu Dhabi and Qatar, but execution broker TD Waterhouse says it's the favourite runner this week with small stockpickers, closely followed by hapless BT at a 20-year low and three more holed dangerously near the waterline in the shape of Royal Bank of Scotland, HBOS and Taylor Wimpey.
Obviously Waterhouse customers haven't lost their bottle, even if many others have.
:: Debt advisor Payplan says its average client owes over £30,000 in unsecured loans - and on average are around £650 short each month when liabilities are lined up alongside assets.
Payplan's John Fairhurst says 2009 will be a year of reckoning in many households, when the number of bankruptcy cases could climb significantly.
Payplan enquiries: 0800 716 239 open six days a week.
:: Once they go abroad, Brits learn how to save. Alliance & Leicester International (ALIL) says 5.5m Brits around the globe have stashed away far more than those they left behind, to the tune of an average £54,600 per household. Savers resident in Britain, by contrast, have only £31,300 per household.
A&L says the wealthiest expats are in the oil rich Gulf states. On average they are sitting on almost £125,000 per household. No wonder, they sometimes appreciate a quiet tipple behind closed doors.
Enquiries: A&L International (01624 641888).
:: T-Mobile aims to cut the cost of phoning home from abroad this winter, with texts down to 25p from 40p, and the cost of mobile broadband slashed 80%, down from £7.50 a MB to just £1.50.
Although most Brits no longer have to scrabble to find enough Euro coins in the local payphone, many travellers are bothered about the strong Euro, and the T-Mobile measures could help more to keep in touch without worrying about the bill which awaits them on their return.
T Mobile spokesperson Claire Booty says travellers have to buy a T-Mobile Euro 10 Booster to get 50% credit free. They receive £15 credit for £10, to spend on calls or texts.
:: HIGH FIVE SAVERS:
Phone No Rate Account Period Deposit Interest paid
ICICI Bank UK www.icicibank.co.uk 7.10% (F) HiSAVE Fixed Rate 12 Month Bond £1,000 OM
Anglo Irish Bank 0845 455 2222 7.05% (F) Fixed Rate Bond One Year Bond £500 On maturity
Secure Trust Bank 0121 693 9111 6.57% 60 Day Notice 60 Days £1,000 Quarterly
Anglo Irish Bank 0845 455 2222 6.55% Seven Day Notice 2 Seven Days (B) £1 Yly
Capital One Savings capitalonesavings.co.uk 6.50% Bonus Saver 3 None £500 Yly
TOP FIVE BORROWERS:
Phone No Rate Period Max% Adv Fee Incentive
First Direct 0845 610 0100 5.49% for term 90% £399 Yes
Mkt Harboro BS 01858 412250 5.49% for two years 75% £595 Yes
Abbey 0800 100802 5.54% to 2/2/14 75% £995 Yes
Barnsley BS 01226 733999 5.69% for two years 85% Yes
West Bromwich BS 0800 298 0008 5.89% to 30/12/18 75% £949 None
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)
