Savings interest rates continue to fall
Despite optimistic hopes for 2014, high street savings rates have continued their downward slide, so it's still time to look elsewhere for decent returns.
Savings interest rates have been on the slide for the past few years, but recently hopes had begun to be raised that a change might be coming. However, the situation looks like it will get worse before it gets better.
Recent weeks have seen a flurry of best buy accounts withdrawn and the rate on the top-paying instant access account plummet to just 1.5%, following Kent Reliance Building Society's withdrawal of its 1.60% account.
Keep track of your money with our free MoneyTrack tool
What sparked hopes of a savings revival?
The major change that it was hoped would lead to an increase in savings rates was the redirection of the Funding for Lending scheme. This Government initiative was designed to boost lending to both potential mortgage borrowers and small businesses.
However, while the mortgage money was getting through, small- and medium-sized businesses were still complaining that not enough funding was coming their way.
As a result, the scheme has now been redirected away from mortgage lending, in part because of fears it will inflate another house price bubble, and onto business lending.
The problem is…
You’d think the obvious consequence of that change would be a rise in savings rates, as banks and building societies need to obtain fresh funding. Unfortunately for savers if those banks and building societies still have a stockpile of money, they don’t need fresh deposits.
And that means the race to the bottom has continued…
How rates have fallen
This table of top interest rates for smaller deposits (under £25,000) shows how rates have fallen over the past 15 months across various different savings terms.
| Product | Top interest rate October 2012 | Top interest rate February 2014 |
| Instant access savings account | 2.85% | 1.50% |
| One-year fixed rate bond | 3.10% | 1.90% |
| Two-year fixed rate bond | 3.50% | 2.32% |
| Three-year fixed rate bond | 4.10% | 2.70% |
| Four-year fixed rate bond | 4.20% | 2.81% |
| Five-year fixed rate bond | 4.50% | 3.25% |
All in all, a pretty bleak picture...
Where to earn most interest now
As we’ve said many times, if you want a decent return on your money in the short term, it pays to look beyond traditional high street savings accounts.
Several current accounts are now paying rates way above inflation. And while there is tax to potentially consider, they’re definitely worth looking at if you have a smaller amount (less than £20,000) to squirrel away.
The other good thing about these current accounts is, in some cases, you can have up to three of each.
If you’re happy to take on a bit more risk, then peer-to-peer accounts are also worth thinking about.
This is where individual lenders, ie savers, are matched to individual borrowers. The rates on offer are generally attractive to both parties. One company, Zopa, has even taken the step of guaranteeing a fixed return (4.90%) over a five-year period.
The risks with peer-to-peer lending are threefold, although they aren’t necessarily that worrying in reality. The first is the risk of losing some or all of your money to defults. However, most companies have some sort of contingency fund in place. The second is your rate can vary. And the third, and arguably most serious, is if the peer-to-peer company goes under your money won't be protected by the Financial Services Compensation Scheme.
So, for now, and particularly if you want to be able to access your money quickly, it pays to keep an eye on what’s out there. And if a good-looking account is launched, grab it while you can.
We list the top rates and where to find them as they change in Where to earn most interest on your cash.
More on savings and investing:
Where to earn most interest on your cash
The costs of investing in tracker funds
Most Recent
Comments
-
nickpike said: [I]Capitalism is dead.[/I] This isn't capitalism. It's fascism--the merger or state and corporate powers. Blair and Brown were not socialists: they were fascists. Under capitalism, Northern Rock, RBS, Halifax et al are allowed to fail.Other banks come in and buy up the best bits of these businesses and throw away the rest. Only under fascism are these banks too big to fail. [I] We're going to pay for this mistake big time. A lot of savers would have been Tory voters, including me. The Tories will be screwed in 2015.[/I] Wrong again. The Tories have been called "the stupid party". I wouldn't disagree with that. But the vast majority of people are stupid, so the tories speak their language. They will get back in again with an enhanced majority. [I] Don't keep a lot of money in savings now. The government are likely to steal it, like they did in Cyprus, and the EU was talking about a stealth savings tax of, from memory, 10%.[/I] Here I completely agree with you. When you tell people about bank holidays, where the banks close down for a few days, and, when they reopen, your money has been devalued, they look at you as though you were mad. Why? This has already happened in many countries all over the world. I will tell you something else that has happened. All of those who have been fool enough to take out a pension. The government grabs hold of your pension fund and replaces it with government bonds that aren't worth the paper they are written on. meldrewreborn said: [I] Yes interest rates are low, but so is inflation.[/I] Are you sure it is not you who is living in Fairy Godmother Land? The correct thing to do with government statistics is ignore them. They are fantasy. The Bank of England is still printing phantom money out of thin air. Where is your low inflation? Where is the corner the country has just turned? I suppose you think unemployment is going down, too. [I] As a saver myself I'm well aware that my saving are generating half of what they were pre crash. I don't like it but the recession we had was WORSE THAN EVEN THAT IN THE 19390's [/I] Well, I have a facsimile of a World War 2 poster advertising National Savings accounts. There was a huge war on. There was rationing and everything. And the interest they were paying then was more than twice what they are paying now. Are you sure you know what a recession is? I am really amazed at how far people let themselves be pushed around. Whatever happened to self respect?
REPORT This comment has been reported. -
Nick Capitalism isn't dead. While it isn't without its faults, its still the best way for living standards to be raised. Visit Cuba if you want to see what happens without capitalism. Yes interest rates are low, but so is inflation. As a saver myself I'm well aware that my saving are generating half of what they were pre crash. I don't like it but the recession we had was WORSE THAN EVEN THAT IN THE 19390's. So clearly its going to be painful to get out of. And many are feeling the pain, but there are no magic bullets, no fairy godmother to wave a wand and make it all better. And the response of the UK government since 2010 is now producing growth that much of the rest of the EU and indeed the world envies. Excessive borrowing got us into this mess, and we have to learn lessons from that. Clearly new/old Labour hasn't done so yet, they're still in fairy godmother land, where money grows on trees.
REPORT This comment has been reported. -
Capitalism is dead. We're going to pay for this mistake big time. A lot of savers would have been Tory voters, including me. The Tories will be screwed in 2015. Don't keep a lot of money in savings now. The government are likely to steal it, like they did in Cyprus, and the EU was talking about a stealth savings tax of, from memory, 10%.
REPORT This comment has been reported.
Do you want to comment on this article? You need to be signed in for this feature
11 February 2014