Savings Rates Soar As Banks Feel The Pinch
Thanks to the credit crunch, you could clean up by stashing your cash in an account with sky-high interest...
Here at The Fool, we like to think of ourselves as savvy rather than cynical. Nevertheless, the idea of banks being kind is enough to provoke a snort of derision from any member of the editorial team.
While financial institutions provide a necessary service, I think it's safe to say that most Fools are aware they aren't doing it out of the goodness of their hearts.
That said, you could be forgiven for thinking that some banks have recently undergone a miraculous, customer-friendly, transformation.
Where The Base Rate Goes...
Banks and building societies used to follow. However, times have changed.
Back in 2007, the Bank of England base rate peaked at 5.75% in July and stayed there until December. During those few months, interest rates on market leading savings products crept up to around 6.3% -- 0.55% above the base rate.
Since then, the base rate has dropped by 0.75%, to 5.0% -- yet interest rates on the top savings accounts have actually increased.
In fact, today's top savings accounts pay around 1.5% above the base rate -- almost three times more than their counterparts did last year!
A Crisis of Conscience?
In reality, the reason for the apparently `generous' interest rates banks are now offering has more to do with the credit crisis than a sudden attack of conscience.
It's no secret the credit crunch has hit banks hard over the past few months. With LIBOR (the interest rate at which banks will lend to each other) high, institutions have had to tighten up their lending criteria, and stop lending money to people so freely.
And while this has obviously had a massive impact on would-be borrowers, it also causes problems for the banks whose profits stand to be seriously dented if they can't keep lending.
As a result, they're turning to the likes of you and me for savings deposits -- the cheapest way, now, for institutions to improve their cash flow.
Sky-High Savings Rates
While the banks stress about how they're going to keep their coffers looking full, savers can pick up sky-high rates of interest on their cash.
Here, I've rounded up three savings accounts that currently offer great deals:
Interest Rate (AER)
Notice Required For Withdrawals
Birmingham Midshires eSaver Account
£1 / £5,000,000
Unlimited transactions with no loss of interest.
£1000 / £1,000,000
Rate guaranteed to stay 0.3% above base rate until 01/02/2012. Unlimited withdrawals with no loss of interest, as long as account balance is £1000+.
£1 / £250,000
Bonus of 0.88% until 31.05.2009. No interest paid during withdrawal months, except July.
As you can see, all of these savings accounts offer a good return for those looking for somewhere to stash spare cash.
Even better, both Birmingham Midshires and Alliance & Leicester allow you to start saving with as little as £1 -- so even if you're not exactly feeling flush, you can make a strong start to building up a nest egg.
Got The Savings Habit?
Those who are prepared to make a serious commitment to saving can get even better rates of interest.
Abbey's Fixed Rate Monthly Saver account offers a whopping 7.25% AER fixed for twelve months as long as you save at least £20 per month.
However, don't consider this account unless you're prepared to leave your money alone for a year -- the interest drops to next to nothing during months when you withdraw cash.
Likewise, Icesave's Fixed Rate Savings Account offers 7.01% AER if you deposit at least £1000 and save it for a year. Do consider this one carefully, though, as no withdrawals or additional deposits can be made during the twelve months that you hold the account.
While the credit crunch is hardly cause for celebration, savers are one group who stand to benefit from the troubles banks are currently experiencing -- as we can clearly see from the evidence above.
In my opinion, if you're able to, now is a great time to start putting some money aside for a rainy day.
While the banks scrabble around for extra cash, you can watch your savings pot swell.
> Why not compare savings accounts at The Motley Fool Savings Centre?