Savings rates are climbing so don’t stick with an Insult Account! SIMON LAMBERT on how to ditch big banks’ pitiful 0.1% interest deals
Savings rates are on the rise finally, with a clutch of the best one-year fixed rate bonds reaching the heady heights of 2.05 per cent.
Meanwhile, easy access rates are as high as 1.2 per cent, with Cynergy Bank and Zopa, while This is Money savers’ favourite Marcus is paying 1 per cent.
Tap into a regular savings account and you can get even more. First Direct has today bumped up its regular savings from 1 per cent to 3.5 per cent. There are limits on how much can go in, but that’s a handy rate for monthly saving endeavours.
That savings rates are rising is good news, but there is, of course, one small problem: inflation is soaring too.
Has your bank put you in an Insult Account, paying 0.1% or even 0.01%? With savings rates on the rise it is time to jump ship
Consumer Prices Index inflation hit 7 per cent in March – the highest level in 30 years – and it is forecast to keep climbing.
This is an issue because when it comes to our money it’s real returns – the rate of return after inflation – that matters.
This is what defines whether we are getting richer or poorer over time: whether our money is growing faster than inflation can eat away at it, or whether the rising cost of living is eroding the value of our savings even after interest is paid.
Take a somewhat anachronistic snapshot of real returns now and that means a saver with the best one-year fix would see their cash eroded to the tune of amount 5 per cent annually.
Meanwhile, those in a top easy access account would be losing about 6 per cent of their money’s value.
I say anachronistic here because inflation figures look back over a year, while a one-year savings rate or the expected future interest on an easy access account looks forward for money paid in today.
Nonetheless, you get my point: savings rates are up, but inflation is up even more and that’s a recipe for losing money.
So, what should you do?
It’s tempting to just throw your hands up and say what’s the point, but the answer is not to just decide it’s too hard and give up.
As a famous supermarket once said, every little helps.
Nobody likes to lose 5 per cent, but it’s better than losing 7 per cent. And that’s what will happen if you just keep your cash sitting in what I call your bank or building societies’ Insult Account.
These are the legacy savings accounts paying such a pitiful rate of interest that to do so is an insult – it would be better to not get any interest at all.
These are the savings accounts paying 0.1 per cent or even 0.01 per cent.
It might feel as if here’s no point seeking out a better rate when real returns are such an issue but it definitely is.
So, if you do one financial thing this week, sort your savings out.
Go to thisismoney.co.uk/save where you will find our independent best buy savings tables and also consider a savings platform to manage your money all in one place.
And remember, rates could keep rising, so maybe don’t lock away too much money for too long.
Nationwide’s insult accounts
On the same day that I published this column, Nationwide sent out an announcement that it is raising savings rates.
Britain’s biggest building society is lifting some rates as high as 0.5 per cent – which it’s worth noting are in no way competitive – and passing on the full 0.25 per cent recent base rate rise to borrowers.
But, elsewhere it continues to offer pitiful rates – one savings account is seeing its rate rise to 0.11 per cent.
These are exactly the kind of legacy rates that I call Insult Accounts.
A 0.10 per cent rise will apply to the Instant Access Saver, Instant Isa Saver and Cashbuilder accounts, moving them up to 0.11 per cent, 0.13 per cent or 0.15 per cent, depending on the balance.
Come on Nationwide, stop insulting your customers, you can do better than this.