When the Bank of England bowed to fearsome pressure last week and cut the Bank base rate (BBR) to help a faltering economy, there was deep concern that homebuyers would get minimal benefit so long as mortgage rates go in the opposite direction.
By Jeremy Gates
When the Bank of England bowed to fearsome pressure last week and cut the Bank base rate (BBR) to help a faltering economy, there was deep concern that homebuyers would get minimal benefit so long as mortgage rates go in the opposite direction.
The plight of savers stashing record sums into building societies, meanwhile, went largely unnoticed - although many could soon see returns on savings take another dive.
Standard Life Bank has trimmed rates already by 0.25%, and others could follow at the end of the month, after banks and building societies hold board meetings.
Some rate cuts so far have been draconian: National Savings & Investments (NS&I), for instance, cut rates on fixed rate investments for new investors by up to 1.10% per annum on April 2.
Some traditional instant access, branch-based savings accounts pay almost derisory rates: Cheltenham & Gloucester has accounts paying less than 2%, Halifax Liquid Gold pays 0.75%, the Nationwide CashBuilder 1.75%- 2.65%.
Says Rachel Thrussell, head of savings at Moneyfacts.co.uk: "Many older people, especially women, can lack passports, driving licences or utility bills in their name which they need to satisfy money laundering regulations when they change accounts.
"They can easily get stuck in accounts paying a low return."
We have come to see the credit crunch as mainly a threat to borrowers - both companies and individual households.
But it isn't difficult to see a scenario unfolding in 2008 to hammer savers too - if they aren't careful.
Inflation, by general agreement, is racing ahead by a higher figure than official statistics admit, while income from savings for many people is falling steeply.
Says Kevin Mountford, savings specialist at personal finance website www.moneysupermarket.com: "While Kaupthing Edge reaffirms its intention to keep paying 6.5% on its online account for the third month in a row, BBR has fallen to 5%.
"I can't recall the gap between best paying accounts and BBR ever being this wide, at 1.5%."
Abbey even advises would-be homebuyers to forget buying this year and stash their deposits instead in a high interest account like Abbey eSaver Direct, earning 6.5%.
Says an Abbey spokesman: "Shifting money could help make these deposits grow faster than house prices, and leave first-time buyers in a stronger position next year. Investing the average deposit of £28,000 would generate around £1,820 in interest over the course of the year."
Abbey presumably assumes would-be house buyers move back in with Mum and Dad to avoid rental payments while their savings soar in value.
However, regular savers in recent months have seen rates on Easy Access accounts zoom past 6%: Alliance & Leicester eSaver (6.50%); ICICI HiSave (6.16%); and Bradford & Bingley Internet Saver 2 (6.15%) all require just £1 to open an account.
Kaupthing Edge, a new entrant to the UK retail savings market guarantees to pay at least 0.3% above BBR until 2012.
But how many savers are flexible enough to keep catching the higher rates? Some savers might also be worried by reports about Icelandic Banks, but Kaupthing Edge enjoys the Bank of England guarantee on savings accounts up to £35,000.
Says Kevin Mountford: "With the cost of living increasing significantly, look closely at your savings account to see what you get after tax.
"If we assume the rise in RPI is somewhere around 4%, savers need a headline rate in excess of 5% to ensure their money merely retains its value.
"In fact, the overwhelming majority of savings accounts still pay less than 5%, some by a considerable margin.
"By the end of 2008, many savers could be getting an after-tax return below 3%, with inflation somewhere north of 4%."
Many economists think BBR could fall to 4% by Christmas - suggesting many building society accounts by then could be paying little more than 2%.
Andrew Hagger at Moneyfacts.co.uk says buyers need to look beyond headline rates to discover those with bonuses that fall off on a specified date; Barclays Tax Haven ISA at 6.5%, for instance, falls 1% after 12 months.
Moneyfacts tips Sainsbury's Bank and Anglo Irish Bank as the best performers on savings accounts. Sainsbury's Bank, with the most consistent Internet savings account over 18 and 36 months, currently offers 5.75% on £1.
Nationwide's e-Savings, second best performer over 36 months, pays 5.30%, with Egg in third place (5%).
On no-notice accounts, Anglo Irish Bank's Easy Access Deposit is tops over 18 and 36 months, and currently pays 6.05% gross.
Moneyfacts.co.uk best buys include Heritable Bank Easy Access Issue 2 (6.06% on £1,000-plus); Anglo Irish Bank's Easy Access Deposit (6.05% on £1) and Bradford & Bingley's My Time Postal Account (6% on minimum £1,000).
For over-50 year olds with a minimum £10,000 to invest, Coventry BS's 50 Plus Notice account is a consistently good performer: it pays 6.45% gross, or 6.27% monthly income.
With few doubting that BBR will go lower as the credit crunch deepens, there's a big incentive for savers to lock into fixed rate accounts - if they are happy to have no access to their money for a specified period.
Icesave's Six Month Bond offers 6.75% gross on minimum £1,000 deposits, along with 6.70% on a one-year bond and 6.60 (two years), all fixed rates.
Cash ISA rates - remember the limit for the 2008/9 tax year rose to £3,600 on April 6 - have also climbed to around 6.30%, interest free: Birmingham Midshires offers 6.35%, Barclays Bank 6.31% and Scarborough BS 6.30%.
Nationwide BS pays 6.15% on a one year fixed rate Cash ISA Bond; for monthly interest, the rate is 6.11% AER.
Kevin Mountford likes the new trend of six month bonds: Birmingham Midshires (BM), promising to beat products from its rival ING by at least 0.25% AER, offers a Direct One Year Fixed Rate Bond at 6.75% (annual interest), or 6.56% (monthly).
BM's Direct Six-Month Fixed Rate Bond, also on minimum £1 deposits, pays 6.71% on maturity (annual), or 6.62% (monthly).
Says BM Director of Savings Operations Jason Robinson: "Fixed rate bonds are a great option for savers keen to protect savings against fluctuations in interest rates for the full term of the investment."
As the credit crunch decouples savings rates from base rates and probably from mortgage rates too, savers should set aim for accounts paying in excess of 6% gross to stay comfortably ahead of inflation.
:: INFORMATION: Kaupthing Edge (www.kaupthing-edge.co.uk); Bradford & Bingley (0800 113 333); Icesave (www.icesave.co.uk); Birmingham Midshires (0845 603 2286); Coventry BS (0845 766 5522); Anglo Irish Bank (0845 455 2222).
POUNDNOTES
:: As arrangement fees on remortgages soar, many borrowers add them to their advance to avoid paying a hefty four-figure bill. But price comparison service uSwitch.com warns that the average mortgage arrangement fee of £987 costs £2,094 when it is added to a 25-year mortgage - that's 112% more than the original fee.
USwitch.com reckons almost eight million people have added arrangement fees to their mortgage instead of paying upfront - adding an extra £8.7bn to their repayments. About 70% of borrowers aged 25-34 choose this route - saddling themselves with higher monthly payments for years to come.
:: Investors are attracted by the high growth potential of Emerging Market economies - and alarmed by the fact they can also be highly risky.
The HSBC Capital Protected Plan & ISA offers exposure to a wide range of emerging market regions, including China, Russia, Brazil, India, new Europe, South Korea, Mexico, South Africa, Taiwan and Turkey and at the end of the six year investment period, investors get a return equivalent to the growth in the index.
Therefore, if the index rises by 50% over that period, investors get their original capital returned, plus a 50% return. Growth is capped at 70% of the initial investment.
The new feature of the plan is that if the emerging markets plunge, investors still get their original investment returned in full. Minimum lump sum investment is £3,000, maximum permitted for a 2008/9 Stocks & Shares ISA is £7,200, although there is no maximum investment for those investing in an HSBC Capital Protected Plan.
Details from HSBC branches or 0800 520 420.
:: When it comes to home insurance don't pay over the odds by thinking the rebuild cost is the same or more than purchase price, says Debra Williams at online car insurance aggregator Confused.com, which has expanded to cover a range of insurance products. Research by Confused.com, a subsidiary of Admiral Insurance, showed that nearly one in three Britons does think the two figures are the same.
In fact a semi-detached house worth around £180,000 and measuring 742 sq ft of living space with a garage would cost £85,700 to rebuild in the South-East and £79,700 in the North-East.
:: With sales of new cars running at about one million a year, uSwitch says manufacturers now offer customers 'on the spot' car insurance as part of the package. It cuts the hassle, but uSwitch.com reckons manufacturers boost profits by £15m a year through this carefully packaged area.
On average, motorists pay £92 extra (26%) for every policy sold by the car manufacturer.
Information: uSwitch.com (0800 093 0607).
:: HIGH FIVE SAVERS:
Bank Phone No Rate Account Period Deposit Interest paid
Heritable Bank 0845 607 1212 6.80% (F) Fixed Rate Bond 12 One Year Bond (B) £1,000 OM
Birmingham Midshires 0845 603 2286 6.76% (F) Direct Fixed Rate Bond One Year Bond (T) £1 OM
Icesave www.icesave.co.uk 6.75% (F) Six Month Bond Six Months £1,000 OM
Coventry BS 0845 766 5522 6.45% (F) 50 Plus Notice 60 Day (S) £10,000 Yly
Kaupthing Edge www.kaupthing-edge.co.uk 6.31% Savings None £1,000 Mly
:: TOP FIVE BORROWERS:
Bank Phone No Rate Period Max% Adv Fee Incentive
HSBC 0800 494999 5.39% (F) to 30/06/13 90% £999 Yes
HSBC 0800 494999 5.39% to 30/06/18 90% £999 Yes
Abbey 0800 100802 5.49% (F) to 02/07/11 90% £675 Yes
Bradford & Bingley 0800 113333 5.54% (FTB) for two years 95% £999 Yes
Co-Op Bank 0800 633 5286 5.64% (FTB) for three years 90% £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)
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