Savings rates are low historically at the moment because the Bank of England base rate remains at a record low of 0.50 per cent, where it has been for the past three years or more.
This makes it even more vital to get the best deal on your savings, however you choose to invest.
However, the Bank of England's Funding for Lending Scheme (FLS) has made a bad situation even worse for savers. The scheme offers lenders the chance to borrow money from the Bank of England at lower rates which means there is less incentive for them to try and attract deposits by traditional means from savers by offering higher interest rates.
Sylvia Waycot, at Moneyfacts.co.uk, said: “The immediate knock-on effect has been the collapse of savings rates across easy access, notice accounts and fixed bonds. And the devastation hasn’t been limited to just the providers who have joined the FLS.
Best rates being pulled
Just four weeks ago the best easy access savings account without a bonus from the Melton Mowbray Building Society offered an interest rate of 2.53 per cent, this week the best rate available is from the Principality Building Society at 2.30 per cent after the Saffron Building Society pulled their easy access savings account paying 2.50 per cent on Friday.
It is a similar situation for easy access savings accounts woth a bonus rate attached to them. At the end of October, you could still get a savings account with Natwest paying 2.85 per cent including a 1.81 per cent bonus. the best deal available one month later is with Tesco Bank where its internet savings account pays 2.40 per cent, which includes a 1.25 per cent bonus for a year.
Over the past three years savers have found it increasingly difficult to beat inflation, even though inflation has been falling over the last 12 months from its peak in September 2011 of 5.2 per cent. By September 2012, the consumer prices index (CPI) measure of inflation had fallen to just 2.2 per cent. However, in October it went back up to 2.7 per cent making it even harder for savers to earn a real return on their income.
Last week, the Bank of England issued its latest Quarterly Inflation Report and warned that inflation is likey to remain around three per cent throughout 2013.
Since base rate fell to 0.50 per cent in March 2009, the benchmark that savings rates are based on has hit the floor.
This has been good for homeowners as mortgage rates are based on the same data, but savers have undoubtedly lost out.
Benefits of easy-access savings
The main benefit is self-explanatory. If you want to be able to get at your money without any penalties or loss of interest then an easy-access savings account allows you to do this.
Pitfalls of easy-access savings
You don’t get the highest levels of interest available. It follows that if a bank or building society knows that it will have your money for a certain length of time without you wanting it, they should pay you more for the privilege.
That is why fixed-rate savings bonds (which Myfinances.co.uk covered earlier this month here) pay a higher rate of interest. They pay more for the longer length of time you are prepared to tie up your money for.
Easy-access or savings bond?
Savings rates for easy access accounts are never quite as good as if you lock your money away for longer but if you know that you will or are likely to need access to your money then fixed rate savings bonds are not the right choice.
If you think it is likely you will need to access funds at short notice for a holiday, new addition to the family, wedding, car or any other reason and you have no other funds, then it makes sense to keep your money in an easy-access account.
If you already have money set aside for any of these reasons or a general fund to cover maintenance and emergencies at home and still have spare funds, then a fixed-rate savings bond is probably the best choice.
The top ten easy-access savings accounts
Bonus or not?
Easy-access accounts come in two forms. Those that pay bonuses and those that don’t. In this feature we will pick the six best without bonuses and the four best that come with a bonus.
Accounts that don’t pay a bonus are easier to manage because you know the rate that you sign up for is the rate of interest you will receive subject to changes by the provider.
Accounts with bonuses tend to pay more but the bonus rate is for a limited period and you need to set a reminder to switch to a new easy-access savings account that pays a bonus when your current bonus rate comes to an end.
The top five easy-access savings account without a bonus:-
Intelligent Finance – Isaver – Tis savings account tops the table at the monet with a rate of 2.49 per cent and can be opened with just £1
Principality Building Society – Its esaver issue 8 account pays 2.30 per cent on a minimum investment of £1. Savers can make unlimited withdrawals without penalties.
West Bromwich Building Society – Its easy access saver 3 pays 2.26 per cent and the minimum investment is £1,000.
KRBS – Easy Access Savings Issue 2 – This product pays a rate of 2.25 per cent and the minimum investment is £1,000 and the account can be opened by post, oline or in-branch.
Skipton BS – My Savings – This account pays 2.25 per cent and can be opened with a minimum investment of just £1.
The top five easy-access savings accounts with a bonus:–
Tesco Bank – Its Internet Saver Account pays 2.40 per cent with a 1.15 per cent bonus that lasts for a year. You can open the account with just £1.
The Post Office – This savings account pays 2.35 per cent, which includes a bonus of 0.70 per cent for 12 months. It requires a minimum deposit of £1.
M&S Money – This account pays 2.35 per cent and includes a one per cent bonus for one year. You can open the account with just £1 and make as many deposits and withdrawals as you like.
Derbyshire Building Society – Its NetSaver Issue 8 pays 2.20 per cent and has a 1.20 per cent bonus rate incorporated into it until the end of February 2014. The minimum investment is £1,000 but there are no restrictions on access. It is only available online.
Nationwide Building Society – Its MySave Online Plus account pays 2.20 per cent including a bonus rate of 1.18 per cent for the first 12 months.
NB – Data updated and correct as at 22/11/12
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