Where to find the best interest rates?

Saturday, 7th February 2009 12:05 - by Resident IFA

Oh, the exasperation! It has been well documented that Savers are bearing the brunt of the recent Bank of England ‘Base’ interest rate cuts, now languishing at a measly 1%. If you rely upon your savings to provide your main income, perhaps a retired person, this hits hard. I watched a television programme yesterday evening, fronted by the ever-excitable Martin Lewis, which covered this exact topic. One retired couple, who had amassed hard-earned savings of £30,000, were now receiving only £10 per week…from £40 per week perhaps as recently as only 6 to 12 months ago. I agree with Mr.Lewis’ argument that you need to work at finding the best rate and keep on top of how rates are charging over time, lender-to-lender. This can be relatively intensive work, especially when we have had a bewildering five consecutive monthly Base rate cuts…but worth the effort. If you can spend a couple of hours – as regularly as once a month – it could well improve your savings returns by a noticeable amount, perhaps taking the strain off your standard of living just a little. Out of interest, I have just had a quick look at the best Internet Savings Accounts rates and Cash ISA rates currently available. Only taking account of those that have responded immediately to last Thursday’s (January 8th) Base rate cut, Yorkshire Building Society came out ‘Top of the Pops’ for Internet Savings at 3.25% Gross (Net returns of 2.6% for a basic-rate taxpayer and 1.95% for a higher-rate taxpayer), and Natwest have the best Cash ISA rate of 3.6% (Although not allowing the inward transfer of monies from Cash ISAs held with other institutions). Both accounts happen to have minimum starting balances of £1. I have a nagging doubt about Cash ISA’s at the moment, however. Whereas they were the ‘Golden Child’, with great rates usually in excess of the Base rate over the last few years, they now, in a lot of cases, have inferior rates to standard savings accounts after tax. With this in mind, why would you save into a Cash ISA? Looking at the medium-term of, say 5 years, interest rates are likely to be higher, if not at the 5-6% level we have seen over the last few years. So, you still have the benefit of Income and Capital Gains Tax-free returns. Once you take existing monies from an ISA – or choose not to utilise your current tax year ISA allowance – you lose it and the tax advantages therefrom. I think Banks and Buildings Societies appreciate the above facts, allowing a little complacency and lack of competition to creep is as they know inertia is a big factor in normal times, but especially when if monies are taken out, tax benefits are irrevocably lost. Don’t forget you can keep these august institutions honest by shopping around. Most allow transfers in (Bar, it seems from the aforementioned research, Natwest!), so you have the ability and right to look around and make sure you have the best rate for your circumstances. I have seen one website that has a table of the most consistent savings account providers in terms of ongoing competitive interest rates. Perhaps this is a better, more sensible ploy to follow, rather than simply be a ‘Rate tart’! I could write pages on this topic, but may Blog next time on the alternative route of investing the money over a 5-year term or longer, whereby 5% can be taken as tax-free income from the investment from day one, also providing the potential for keeping the capital relatively stable or even achieve some capital growth. There are capital risks involved, however, so please seek the advice of a/your IFA (Independent Financial Adviser). Until next time…