The words rock and hard place spring to mind when describing the plight of UK savers at the moment.
Every month people are coming to the end of decent 4 or 5 year fixed rate bonds that were taken out when interest rates were substantially higher.
Those savers are discovering the harsh savings reality of 2011:
The choice you're left with is less than ideal. Either wait and see – take a short term hit in the expectation that things will improve in the next year or two. Or, take a long term savings product, such as a 5 year fixed rate bond, and risk being locked into an uncompetitive rate later.
The best fixed savings accounts have some distinct advantages:
The truth is that nobody knows what will happen to interest rates. People can make educated guesses, or predictions, which might help you to make a decision – but it still boils down to a guess.
Your ISA allowance is a great opportunity to earn more interest on your savings. The best fixed rate ISA is offering 4.50% AER (Governor Money Bank of Ireland UK - 5 Year Fixed Rate ISA). The best fixed savings account over the same period pays 4.70% AER.
But a non-ISA fixed rate account is subject to tax – 20% if you're a basic rate taxpayer, 40% if you pay higher rate tax. So that 4.70% actually means 3.76% for a basic rate taxpayer – or only 2.82% for somebody paying the higher rate.
Admittedly you can only pay £5,340 into a cash ISA each year – but that's still a big tax break for your savings.
Information correct as at 9.12.11
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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