Apr 13

Saving: the recession and your savings accounts

Reading Time: 6 minutes

The recession is a tough time for savers. There are loads of new savings accounts available, but very few seem to be offering much interest. It’s hard to know where to put your money to give you the best, and safest, rate.

  • One of the best fixed-rate bonds at the  moment is the Halifax Fixed Online Saver which pays 3.85% AER on its three-year fixed rate bond and 3.25% on its two-year accounts.
  • If you’re a regular saver, Barclays’ Monthly Savings gives you 3.25% AER on a maximum investment of £250 a month (minimum £20 per month). This account, however, only runs on a 12-month term.
  • Cash ISAs give you a tax-free return on your interest, and Barclays Golden ISA Issue 1 pays  a variable 2.02% rate of interest.
  • Currently, Santander will give you an excellent rate of 3.1% on their Instant Access Saver Account , which includes a 2.6% bonus for the first 12 months and allows you to withdraw money without giving notice.
  • The Manchester Building Society currently has a great rate on its Premier Instant Account Issue 13 at 3.06% a year. It also guarantees to pay at least 1.75% until 1 January 2015. Three withdrawals per year can be made without notice and there is no penalty for early closure.

Even though the rates aren’t the best right now (don’t we know it!) it is still important to keep the savings habit going. Also, as inflation is coming down gradually, the currently low rates will actually give you a better return in real terms than it seems on the surface.

The important thing is to find the type of savings account that is best for your needs and then hunt down the best rate for it. We’ve researched the different deals and have found the best rates in the various savings categories. Just scroll down to find the one that best suits your situation.

the moneymagpie savings accounts comparison tool

If you just want the best rates going…

Fixed rate bonds

Fixed-rate accounts or ‘savings bonds’ are like most other saving accounts, except that you agree not to touch your money for the duration of the bond (say six months, a year or three years).

This is good for both the saver and the bank. The bank gets your money for, say, a year, which it can use as it wishes. You, as a saver, can take advantage of the generally good rates of interest.

Obviously, the disadvantage is that you can’t touch your money for the specified fixed period. Also, you’re taking a bit of a gamble. The interest rate is fixed, so you won’t be able to take advantage of any subsequent rise in interest rates. On the other hand, you are protected against any fall in interest rates.

For short-term fixed rate bonds, Vanquis is a good one, with its High Yield one-year bond offering 3.25% AER, with a £1,000 minimum deposit but with no early access.

This is a good product to look at if you want stability and flexibility at the same time. With the relatively short 12-month term, you are free to re-invest or change to a better account after a year.

For long-term fixed rate bonds, the Halifax Fixed Online Saver pays 4.10% AER on its three-year fixed rate bond and a generous 3.85% on its two-year accounts. The minimum deposit is £500. Withdrawals are not permitted and no additional deposits can be made after opening the account.

This is something to look at if you want peace of mind for a longer period of time.

Regular savers

Regular savings accounts offer some of the best rates across the board. For example, Barclays Monthly Savings gives you a return of 3.25% AER (AER, or Anuual Equivalent Rate, is essentially what the interest rate would be if the interest were compounded and paid annually instead of monthly).

The main problem with regular savings is that there is a maximum (usually quite low) amount that you can deposit per month. For Barclays Monthly Savings, it’s no more than £20 a month.

This account is really handy if you want to put away a little of your monthly income towards a specific goal, e.g. a weekend away or a second-hand car. It’s also a good account to have if you’re not very disciplined as you get penalised for taking your money out at any time.

Cash ISAs – Fixed rate

Cash ISAs (Individual Savings Accounts) operate like any other savings accounts, except you don’t pay tax on your interest. For fixed rate cash ISAs, the interest rate is constant throughout the term of your account, which can be from 1 year to 5 years.

The downside is that you have to give notice of any withdrawals you wish to make, and usually there is some financial penalty imposed. Also, you can’t put any more than £20,000 into your account in a tax year.

If you think you’ll need ready money, scroll down to Cash ISAs (Easy Access).

Notice accounts

These are also variable interest rate accounts, where you have to give notice to the bank if you want to make a withdrawal.

Secure Trust Bank has a 120 day notice account (issue 2) paying 3.04%. Minimum deposit is £1,000. Three withdrawals allowed per year and these are subject to 120 days notice.

FirstSave’s 90 Day Notice Account gives you 2.5% AER for an initial investment of £100, and you have to give 90 days notice if you wish to make a withdrawal without penalty.

If you really need to access your money in a hurry…

Instant or easy access savings accounts do just what they say on the tin – they’re accounts that allow you to take out money at short notice. These are useful for day-to-day expenses but you do lose out on interest in return for the flexibility.

Online accounts

Online accounts give you immediate and easy control over your savings without you leaving your seat. Why not manage your savings while you’re checking your email or looking for a recipe?

Norwich and Peterborough’s Family Young Saver Easy Access Savings Account gives you 1.75% AERfor an initial investment of just £1 and is available to anyone aged seven or over. You get instant access to your cash from any LINK machine and no restriction on the number of withdrawals you can make.

ICICI’s HISAVE Savings Accountgives you 0.8% AER, and while you don’t get an ATM card either, you can access your account 24/7 via phone, and you can also check your balance via texts to your mobile.

Easy access accounts

Easy access accounts offer you the flexibility of depositing or withdrawing your money whenever you want, without notice or penalty, for a slightly lower variable rate of interest (this means that the rate of interest can change throughout the term of the account).

 Cash ISAs – Easy access

These are the same as Fixed rate Cash ISAs (see above), except that you can make withdrawals without notice or penalty. They also pay out a variable and lower rate of interest.

Barclays Golden ISA Issue 1 pays a variable 2.02% AER, with a maximum deposit of £10,680 each tax year.

Marks and Spencer Money’s Flexi Cash ISA gives you a variable 2.65% AER with a minimum deposit of £5,340. This includes a 1.25% bonus payable for 30 months.

Niche savers

Silver savers

West Bromwich BS offers over-50s good rates with their High Income Over 50s Notice account. For an investment of up to £75,000, you will get 2.8% AER. There is a 90 day notice period, and interest can be paid monthly rather than annually.

Children’s Savings

Halifax’s Children’s Regular Saver offers an unbelievable 6.00% AER, and what’s more, it’s fixed for 12 months. However, your child needs to save between £10 and £100 a month, and he or she is not allowed to withdraw during the term of the account. It’s a good way to get them into the habit of saving though.

You can compare returns on our calculator.

the moneymagpie savings accounts comparison tool

To sum up: What you need to think about…

1. Who you are

Children and older savers can benefit from different, potentially higher-paying saving schemes. Do also remember to fill in the Form R85 from the bank if you are a non-taxpayer. This tells your bank that you do not have to pay tax on the interest you receive. You need to fill in a separate form for every institution you bank with.

2. Interest rates

Obviously the different interest rates offered by different institutions may sway your decision, but also be wary of whether it’s fixed or variable rate. Both offer their own pluses and minuses, depending on how you see the immediate future.

Currently, the Bank of England’s base rate is !!bankofenglandbaserate!!. The interest rates will start to rise again at some point so keep that in mind when looking at interest rates.

Also do check whether the institution’s rates are linked to the Bank of England’s base rate or not.

Be wary when the advertised interest rate comes with a ‘bonus’. This is to mask a lower underlying interest rate which will come into force after a certain period of time.

Finally, the best way to compare interest rates across the board is to use one standard: either AER or gross per annum. Monthly rates can sometimes be confusing, and misleading.

3. Notice and flexibility

Flexibility is usually an inverse trade-off with interest rates, so do think about whether you can afford to put away an amount of money for a period of time, for the sake of higher interest rates.

4. Initial investments and continual deposits

Some institutions make it easier for you to start an account with a lower minimum investment, even down to £1 in some cases!

Also, do check whether you’re allowed to make continual deposits into your account for the term of investment. Some, like ‘Regular Savers’, make it an active requirement; others, like ‘Fixed Rate bonds’, don’t allow it.

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Jonathan Campbell
Jonathan Campbell

Disregard what this says about Vanquis, to existing customers they will user fear tactics and bully you rather than trying to support your situation. I’ve heard of someone getting calls up to 8 times a day after taking a card out with them!

Additionally, they send out unwanted marketing letters to those who aren’t currently customers.


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