As new Which? research reveals instant access savings accounts and cash Isas have suffered an average of 20 rate cuts a month in eighteen months, we reveal tactics to get savvy with your savings.
Which? research finds savings providers have made a total of 343 cuts to rates on their instant access saving accounts and cash Isas since August 2012, despite the Bank of England base rate being stable at 0.5%.
These rate cuts add insult to injury for savers who have seen returns plummet since the financial crisis began. In February 2008, the average instant-access savings account paid 4.14% – today it is just 0.63%. This equates to an annual loss of £351 for someone saving £10,000 in an average instant-access savings account (earning £414 annually in 2008 before tax compared to £63 today).
It’s therefore never been more important for consumers to get savvy with their savings. Some current accounts now pay more interest than instant-access savings accounts, as long you deposit a certain amount each month. Also the best rates on regular savings accounts are competitive with the rest of the savings market.
With Funding for Lending for mortgage lending now ending, rising savings rates may be on the horizon so it’s no time to be complacent, particularly if your bonus period or fixed rate offer has expired. Our Savings Booster tool will show you where to move your money.
Which? executive director, Richard Lloyd, said:
“It’s no secret that savers have been hit really hard in recent years, so it’s important to be a savvy saver and take advantage of the best deals across the whole market, not just savings accounts.
“But banks and building societies should make it easier for savers by giving them clearer information. This includes putting interest rates on all statements, sending annual summaries, and better notification when a bonus rate ends or if better accounts are available.”
Which? reveals some top tips to spring clean your savings:
· Switch providers to get the best rates: Our Savings Booster tool will show you where to move your money.
· Use your tax-free Isa allowance: A cash Isa is still usually the best place for savers to start, despite the disappointing returns, so maximise your tax-free allowance which is currently £5,760 increasing to £5,940 from 6 April 2014.
· Go online: Seven of the 10 best rate instant-access accounts are only available via the internet.
· Become a regular saver: First Direct, Marks & Spencer and HSBC pay an impressive 6% although you have to be an existing current account holder to qualify. You must also commit to monthly deposits and make no withdrawals (also be aware that you only get interest on the accruing monthly balance, so the headline rate will not be comparable with other savings accounts where a lump sum can be deposited.)
· Save in your current account: Santander lets you open two of its 123 accounts which means you can earn up to 3% on up to £40,000 and a new TSB account offers 5% on balances up to £2,000 (both have minimum monthly funding requirements and the 123 account has a monthly fee). Nationwide’s FlexDirect account pays 5% AER in the first 12 months, falling to 1% after that, on balances of up to £2,500, while Lloyds Bank pays up to 3% on balances of up to £5,000.
· Lock your money away: If you can afford to keep your money in a fixed-rate bond, some savings accounts beat cash Isas even after tax – the best four-year fixed-rate savings bond from Shawbrook pays 2.28% after tax, compared to the best equivalent cash Isa from Bank of Scotland and Lloyds paying 2.15%. If you’re a non-taxpayer looking to lock your money away for two, four or five years, you’ll also be better off choosing the best standard savings account as opposed to the best cash Isa. While fixed accounts offer a consistent interest rate, you might find yourself stuck in an uncompetitive account if rates rise.
· Beat inflation: Currently 50 cash Isas match or beat inflation with rates of 1.9% or more (although only four of them are instant access and all come with restrictions.) If you’re a basic rate taxpayer and can tie up your money for three years, 31 standard savings accounts pay at least 2.38% after tax.
· Stay protected: Make sure you don’t exceed the Financial Services Compensation Scheme protection limit of £85,000 per person per banking licence.
Notes to editors:
1. We tracked the interest rates on offer from the 555 instant-access savings accounts and cash ISAs available to new savers, every week between August 2012, when the Funding for Lending scheme was launched, until the beginning of February 2014. 164 of these cuts were to accounts still available to new customers; and there were 179 occasions where an account was withdrawn before being reintroduced at a lower rate.
3. Top savings rates have dropped from 3.2% in August 2012 to 1.45% in February 2014. The best instant cash Isa currently pays just 1.75%, and 2014 is the worst Isa season since they were launched in 1999.
4. We found that a quarter of instant-access ISAs available to new customers don’t currently accept transfers in, including three of the five best-rate accounts. You should never close your cash Isa and move your money yourself as you will lose your tax-free wrapper.
5. In a survey of 8,548 Which? members, 58% said low interest rates on savings was their biggest frustration.