There's still hope for savers

Savers may still be bearing the brunt of the credit crunch, but we tell you why it's more important than ever to fix your savings.

It's not often that I pay attention to what goes on in the morning, and can often be found sprawled on my couch, morphing slowly from my zombie-like state into a functional member of society.

However, this week while watching my usual dose of breakfast television, I caught a glimpse of events at BBC's Money Matters, a financial roadshow held at Manchester's Trafford centre, and was amazed to see the amount of people queuing for advice.

And the hot topic of the day? Savings.

After the drama of last year, it makes sense that savings would be the top of everyone's agenda. After all, as rates have plummeted and banks folded, everyone has started to pay attention to their hard earned cash.

Silver linings

During these uncertain times, it makes sense to fix your savings to ensure you shelter it from any further cuts in the base rate.

Some may argue that the fixed rate boat has already sailed. But despite dwindling rates, it's not all been bad news, and according to Moneyfacts, although the base rate may have fallen these past few months, the margin between the base rate and the best fixed rate bonds has nearly doubled from 1.5% in February last year to 2.9% now.

This shows that banks are still in need of our cash to boost their balance sheets, and while the rates may not be as attractive, it's still good news for savers looking to beat the base rate.

If you are looking to fix, the best one year fixed rate bond at the moment is ICICI's HiSAVE Fixed Rate Account, which currently pays 3.9% on balances from £1,000.

Alternatively, Bank of Cyprus is also offering fixed rates of up to 3.9%. However, in order to get this rate, you'd need to lock your money away for three years, with its one year bond paying a lesser rate of 3.7%.

If you've banked with Coventry building society for five years or more, there's even better news. If you're willing to fix until April 2012, existing members can enjoy a rate of 4.1% on its Members Anniversary Bond.

Remember, longer deals may be tempting at the moment, but where interest rates are concerned, a lot can happen in three years, and you may lock your money away in an account which is no longer competitive several months down the line.

On the flip side, between January and February, the top fixed rate on offer dropped by 0.75%. This is an indication that money markets are slowly beginning to loosen up, and while banks are still in need of our money, they may soon be offering less juicy rates.

So if you're going to fix, fix now.

Looking on the bright side

These deals may be the best on the market at the moment, but if you're a saver used to rates topping 7%, you may sneer at the accounts above.

However, the real return savers are receiving is also improving, as inflation continues to decline.

Last January, the Retail Prices Index (RPI) - one way we measure inflation, rose by 4.1%. On Tuesday, this same measure showed a rise of just 0.1% - the lowest RPI annual inflation rate since March 1960.

This means that while last year basic rate taxpayers would need to earn a rate of 5.13% in order to beat inflation, and higher rate taxpayers 6.84%, now you'd only need to earn a rates above 0.125% and 0.167% respectively to beat it.

Of course, depending on your lifestyle, you may not be feeling the benefits of falling inflation at all. But whatever your personal inflation rate, the important thing to remember is it will probably be a long time before savings rates head upwards again.

So, if you can - fix your savings. If you can't - keep your eye on the ball. Whether you have fixed rate bonds or instant access savings, paying attention to your cash will ensure your savings continue to grow.

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