With this month's rise in base rate, many people with savings may be expecting the interest rates on their accounts to also see an increase. However, looking back over the last two years, the savings market has delivered some sometimes unexpected and unwanted surprises.
Since the start of 2006, over 40 savings account providers have cut rates at least once on their variable savings products, in some cases by as much as half a percent. Now base rate has increased, many people will be looking for increased returns on their savings. However if you have been one of the unfortunate customers to see rates on your savings cut over past months, you may actually find yourself no better off.
Today there are over 500 instant access/no notice savings accounts and almost 300 notice savings accounts to choose from, so finding the best savings deal can be rather daunting. But don't be fooled into thinking that, because you have money invested in a savings account, the interest rate is protecting your money from inflationary pressures. Average rates are only marginally ahead of inflation at 2.685%* for instant access/no notice accounts and 2.766% on notice accounts.
With best buy rates of at least base rate easily achievable on notice and no notice accounts, ranging as high as 5.0%, you could be missing out on interest if you have not shopped around for a good deal.
With 89% of consumers in the recent Moneyfacts.co.uk user survey considering themselves long term loyal customers of their bank, it is likely many will remain with the same account for some time. Looking back over the last two years, and taking into account changes in base rate, people holding instant access savings accounts are now receiving a marginally better rate of return, whereas those with notice savings accounts are on average worse off.
Over the last two years the difference in rates between notice and no notice savings accounts has also narrowed; in 2004 on average you would receive 0.346% more for tying your funds into a notice account compared with just 0.081% now. So the incentive to invest your savings within a notice account with rigid terms now seems a little pointless – the reward has virtually disappeared.
As the number and variety of savings accounts increases, so seems their complexity. Many accounts now offer introductory bonuses, rate guarantees, tiered rates, restrictions on the number of withdrawals and a whole other array of conditions. But it is well worth shopping around to secure a good home for your hard earned savings. Taking for example a deposit of £5K, an additional 2% interest would earn an extra £100 a year, not a bad return for a few minutes' work!
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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