Don't Let The Banks Pinch Your Money!
With numerous banks exploiting interest rate rises, we reveal the top savings accounts to move your cash to.
Banks baffle me. Just this morning, I opened my post to find a letter from Intelligent Finance, informing me of its new terms and conditions regarding my savings account. The thing is, I closed that account three years ago.
And they're by no means the only culprits when it comes to incompetence and money wasting -- in fact, I reckon they're all as bad as each other. However, my biggest gripe with the banks at the moment is their failure to fully transfer Bank of England base rate raises to savers.
Yesterday's decision to keep the base rate at 5.25% will have come to a great relief to many with variable rate mortgages and loans. Rates on borrowings tend to reflect base rate movements immediately, meaning we're charged more interest. However, many of us feel we can at least take comfort in the fact that while our debts are being charged more interest, at least our savings will earn more.
Unfortunately, nowadays this is far from true. Although we've seen three base rate rises in the last six months, a large number of savings account rates have barely changed. What's more, we've been further insulted as most of the ones that did increase took weeks to do so. As a result, many so-called flagship accounts are now paying rates that trail miserably behind the base rate!
Take ING Direct, for example. Soon after it launched its no-nonsense, straight talking Direct savings account in 2003, it was paying 4.3% AER -- a whopping 0.8% above the base rate at the time. Over one million of us stashed our cash with them (including me). However, less than four years later its rate is a measly 4.75% AER -- a whopping 0.5% behind base rate. What's going on?
Of course, failure to increase savings rates isn't accidental -- it's a very effective way for the banks to make more profit. In fact, the Sunday Times reckons that as Britain's biggest banks have raised their savings rates by an average of 0.2% since January, while mortgage rates have gone up 0.26 points, banks have netted themselves an estimated £450m in extra interest. Blimey.
Fortunately, there are still some high paying accounts in which to stash our hard earned cash. And the simple solution is to move those savings. However, if, like me, you believe you should have instant access to your cash with no penalty, it's important to check the terms of any new account carefully. A number of accounts have been launched recently with table topping rates -- but when you scratch the surface you can reveal a number of rules regarding access.
Take the Bank of Scotland's Instant Access Savings Account Reward. It pays a market leading 5.75%AER fixed for a year. However, you need to keep at least £5,000 in the account and can only make one withdrawal in the year; exceed this and the account is switched to its Instant Access Savings account (paying a far less exciting 5.25% AER). And HSBC's Online Saver pays a similar rate, but should you make a withdrawal, you'll forfeit interest for that entire month.
And Ing now offers a Websaver account, currently paying a far more generous 5.65%AER. However, you need to be an existing customer to open one. Not a big deal, you may argue, as it doesn't take long to open its Direct account. However, isn't this unnecessarily complicated -- having to open two accounts when you only wanted one? What's more, delve into the terms and conditions and you find that any payments into the account (or withdrawals out of the account) must be made through the tied (Direct) account.
So, for those that would like their money to earn a straightforward rate with instant access and no catches, here are some of the best accounts on the market at the moment:
Top Internet Savings Accounts
Guaranteed to beat the base rate by at least 0.25%AER until 1.10.09
ICICI (apply through the Fool)
Guaranteed to beat the base rate by at least 0.25% until 31.12.07
Bradford & Bingley
Guaranteed to beat the base rate by at least 0.25% until 30.06.07
Min. £100 withdrawal
Guaranteed to match the base rate until 28.02.07. Interest must be paid to another account.
Birmingham Midshires (apply through the Fool)
Direct Internet Savings
Guaranteed to beat Ing Direct by 0.25%AER until 1.8.08
Top account is clearly from Icesave, if you have £250 or more to put away -- especially when you consider the guarantee to beat the base rate by at least 0.25% until 2009. What's more, it also states that the rate will not thereafter be lower than the base rate until October 2011 -- so it could be a good option for those that loathe switching savings account too regularly. What's more I've tested this account out myself, as I opened one a couple of months ago.
However, a word of advice -- if you are thinking of opening a new savings account, try to do so with £1 to begin with, and transfer the rest of your savings over when the account is up and running. You may not earn the full rate of interest straight away, if a higher initial deposit is required, but at least the bulk of your cash will be safely growing, should your new account take a while to be set up.
So don't let the banks pinch your money, move that cash to a high paying savings account and maximise your interest, today.