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Five minute finance: Savings

Five minute finance: Savings

Category: Savings

Updated: 01/02/2010
First Published: 01/02/2010

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The recent spike in inflation is a double edged sword for savers. Unless you are prepared to lock your money away, it is virtually impossible to find an account that pays a rate to beat both tax and inflation. However, if inflation remains high the Monetary Policy Committee will have little option but to raise base rate sooner rather than later, which will be a welcome relief for savers.

With a base rate rise increasingly likely within the next year, those that are prepared to tie up funds are looking for a short term commitment. Unfortunately for savers, it is one year bonds that have seen the biggest cuts of late, with the average rate falling back below 3.00% for the first time since July 2009.

In November 2009, NS&I offered savers a one year bond paying 3.95%, the highest one year rate since bank rate was reduced to 0.50%. The combination of a top rate from a well known government backed provider meant the product was soon oversubscribed and withdrawn. Today, if you're not prepared to invest with a bank with their parent company based overseas, you can only achieve a one year rate of 3.30% from the Post Office.

Market leading ISA

The Manchester Building Society has recently stormed to the top of the best buys with a new issue of its Premier ISA. The account pays a market leading rate of 3.01%, including a 1.00% bonus for 12 months. Savers can invest from £1,000 into the account, which accepts transfers in. If savers want to make a withdrawal from this branch and postal operated account, they must give 60 days' notice. Earlier access is not permitted.

Northern Rock steps up

Northern Rock has just launched two new stepped fixed rate ISAs. The first matures on 15 March 2013 and pays 3.50% in year one, 4.00% in year two and 4.50% in year three. Alternatively, savers can opt for the ISA that matures on 15 March 2015, which pays the same as above in the first three years, then 5.00% in year four and 5.50% in year five. Savers can invest from £500 into the ISAs, which accept transfers in. Earlier access is available but will be subject to a loss of 180 days' interest. On maturity the money is transferred to Northern Rock's 30 Day Cash ISA, with penalty free access to funds for the first 30 days.

Leek helps older savers

Leek United Building Society has this week upped the rate on its 50 Plus Postal Account. The account is open to savers aged 50 years and over and provided savers make no more than three withdrawals, the account pays 3.00%. No notice is required to make a withdrawal, but if four or more withdrawals are made, the account pays 2.50%. Savers can invest between £500 and £250,000 into the account, which is operated by post.

Find the best savings accounts for you - Compare cash ISAs

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.