Monthly archive for November, 2014
For those who are not prepared to risk their capital to try and achieve higher returns, the ability to rely on traditional savings products has never been more challenging. Savers keen to maximise the level of FSCS protection with their capital have only really had a couple of options historically. Either accept a variable rate but have instant access to your savings, or alternatively sacrifice access and receive a higher interest rate depending on how long you are able to tie up your money.
But as savers continue to face significant falls in the level of income available, more and more of us are having to face the truth about just how serious the situation is. So what are you doing with your savings and have you questioned your decisions in the past? Here we take a look at the harsh reality being faced by savers whilst looking at the pros and cons of the options being considered. Our Head of Savings and Investments, Oliver Roylance-Smith, will also offer his own view in the context of the current savings rates on offer and the outlook for the market in the coming years.
‘Tis the season to be jolly…
Unfortunately the start of advent has not brought with it any gifts for savers. Although the plight of savings rates often takes a back seat to the more economically charged debate around when we might see a rise in interest rates, the ongoing situation for savers is a fairly easy one to square off.
The current Bank of England base rate of 0.5% is the lowest it has ever been, and with the Monetary Policy Committee (MPC) voting again this month to keep it on hold, we are now in the 68th consecutive month of this record low – that’s’ over 5 and half years… So if you’ve ever made a decision on your savings based on the hope that interest rates might go up within the next 12 months, you now have a constant reminder of how painful this can be.
The challenging environment for savers continues as more and more of us are being forced to face the truth about the impact of record low interest rates on our savings and our future. With the current market for traditional fixed rates offering some of the lowest rates ever seen, it is perhaps easy to understand why the potential for higher returns available from the range of structured deposit plans is becoming a more compelling option for savers to consider. With this in mind, we take a detailed look at the Kick Out Deposit Plan from Investec Bank to find out why this particular plan has been proving so popular.
Traditional savings rates underperforming
The current economic environment is as challenging as it’s ever been and those that are feeling it most are savers looking for a competitive net return once tax and inflation are taken into account. Unfortunately traditional savings rates are failing to deliver with both instant access and fixed rate bonds continuing to offer record low rates.
Leading one year fixed rate bonds currently offer around 1.9%, three year fixed rates around 2.5% and up to 3% is on offer if you can fix for five years. Top deals a year ago would have secured you 2%, 2.55% and 3.15% over these same terms and so the current best buys are even lower than they were 12 months ago. As for instant access accounts, these are currently paying a paltry 1.50% AER and so all but non-taxpayers are losing money in real terms despite the headline rate of inflation standing well below the Bank of England’s 2% target.
While top fixed rate deals might be thin on the ground at the moment, there are alternatives to traditional fixed rate bonds, such as structured deposit plans, which could be an option for those who would normally have chosen to lock their cash away in a fixed rate bond. See below for our selection of some of the best fixed rate bonds and alternative savings plans on the market in November 2014.*
Short term fixed rate bonds
For those looking for a short term fixed rate, State Bank of India currently offers a one year fixed rate bond offering 1.80% gross/AER requiring a minimum deposit of £10,000. No withdrawals are permitted during the term of the bond.
For those wishing to save a smaller amount, Aldermore offers a 1 year fixed rate bond with a lower deposit requirement of £1,000, offering 1.75% gross/AER.
Axis Bank offers a tiered interest rate on its one year fixed rate bond – earn 1.55% AER for deposits between £10,000 and £30,000, 1.60% AER for deposits between £30,000 and £50,000, or 1.70% AER for deposits between £50,000 and £200,000. Interest on this account can be paid monthly, quarterly or at maturity, and no withdrawals are allowed during the one year term of the bond.
If you currently hold most of a your business cash in a current account, it’s worth noting that cash that is not currently required as capital for the day-to-day running of your business will usually generate more interest if you move it into a specialist business savings account. To help you choose the right option for your business, we’ve put together a selection of some of the latest business savings accounts in November 2014.*
Latest easy access account deals
If you’re likely to need access to your capital at short notice, Cater Allen’s Asset 30 account offers a rate of 0.65% AER/gross and pays monthly interest, with a minimum opening balance of £5,000. Withdrawals are permitted at any time, as long as you give 30 days’ notice.
The Bank of Cyprus offers a 95 Day Notice Account for businesses, which is open for balances of between £1,000 and £5,000,000 and offers 1.36% AER/gross. Interest is calculated daily and paid into the account each month. Withdrawals are only permitted subject to 95 days’ notice.
Fair Investment Company is committed to helping charities get the best interest rates on their savings. See below for our selection of some of the best charity saving accounts available in November 2014.*
Latest notice account deals
With a 30 day notice requirement, Cater Allen’s Asset 30 Account offers 0.65% AER/gross, with a minimum deposit requirement of £5,000. Deposits are guaranteed by Santander Plc. For a higher rate of interest, the Manchester Building Society offers a 60 day notice Business Tracker account which promises an interest rate that will remain 0.65% above the bank of England Base Rate until 30th September 2015. The current rate on offer is 1.15% AER/gross and the account is open for deposits between £10,000 and £75,000.
Latest fixed rate bond deals
The Cater Allen 3 year fixed term deposit plan offers 1.90% AER/gross fixed for three years, for those who are able to tie up their charity savings for longer. The account requires a minimum deposit of £50,000 and deposits are guaranteed by Santander UK plc.
The Scottish Widows 3 year fixed term deposit account pays 1.50% AER/gross with a lower minimum of £10,000. Interest can be paid monthly, quarterly or annually, allowing you to choose the option that suits your charity finance requirements.
AER – Stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. (As every advertisement for a savings product which quotes an interest rate will contain an AER, you will be able to compare more easily what return you can expect from your savings over time)
The introduction of our Plans of the Month series was to let savers and investors know where others are putting their money and to give us a chance to spot competitive plans which may have fallen under the radar. Our new and existing customers gain regular access to some of the best plans available in the market and so knowing what has proved popular with them during the previous month across both savings and investments can be useful.
Savers and investors
The plans featured are spread across five different categories, two capital protected savings plans and three investment plans:
- Fixed rate bond Plan of the Month
- Savings alternative Plan of the Month
- Income investment Plan of the Month
- Growth investment Plan of the Month
- Kick Out investment Plan of the Month
By covering traditional fixed rates bonds, FSCS protected savings alternatives, and income and growth investments, the categories aim to cover a range of options for both savers and investors, whether seeking either income or growth.
Current ISA rules mean that any income or growth received within an ISA is not then subject to tax, whilst recent changes mean you are now able to hold all of this in either Cash or Stocks & Shares and you also have the freedom to switch from one to the other and vice versa. With the current allowance at £15,000, ISAs can now play an even more prominent role for both savers and investors which is why wherever possible, each plan listed will be available both in and outside of an ISA as well as accepting ISA transfers. Please make sure you check the individual plan details first though to check.
There’s something quite satisfying about knowing that the rate you are receiving was the best rate in the market at the time of taking out the product, and for fixed rate bonds, especially in a such a low interest rate environment, it is imperative to shop around and make sure you get a competitive deal. Well fortunately Investec are here to help with not just one, but two market leading savings rates over three and five years respectively. Not only are the rates on offer currently top of the tables, they also offer a little extra…
Investec 3 Year Base Rate Plus Account – minimum 2.50% AER
For those who want to take advantage of increases to the Bank of England Base Rate but still want the convenience and security of a minimum fixed return, Investec has shown some welcome innovation in the market with their 3 Year Base Rate Plus. The account pays 1% AER/variable above the Bank of England Base Rate, but with a minimum rate of 2.50% AER, so whatever happens you know you will never earn less than this.
The talk of interest rate rises is never far from the spotlight and although the consensus is that this is unlikely to be before next year, a lot can happen over a three year timeframe. This account therefore offers you the chance to take advantage of any future Base Rate rises over the next three years whilst also offering the safety net of a minimum return that is currently market leading for a three year fixed rate.
Interest is not compounded and will be paid into your nominated account annually. No early closure or withdrawals are permitted and the minimum is £25,000. You can apply online and access to account information is via online and telephone banking.
Fair Investment view: “The minimum deposit of £25,000 is a little high but increased minimums have become more common in order to secure the best rates and the 2.50% AER minimum is currently market leading for a three year fixed rate. With inflation slowing to 1.2% for the year to September, the rate has been popular with savers looking for a market leading fixed return and FSCS protection, but who also have half an eye on what might happen to interest rates in the next few years.”
Click here for more information about the Investec 3 Year Base Rate Plus Account »