Archive for the ‘Current accounts’ Category

Summer sizzlers: our hottest savings and investment ideas this summer

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Last updated: 29/08/20176

Whilst our sprinters surged forward to a compelling and action packed final weekend at the World Championships, the Bank of England on the other hand refused to take action and raise interest rates this month by keeping the base rate at a record low of 0.25%. With no indication whether the Bank of England will raise interest rates any time soon, this is a useful reminder for both savers and investors to regularly review their options. So to help you stay on top of what the current market has to offer, we bring you a selection of some of our most popular savings and investment deals available this summer.

Interest Rates

The economic landscape has not changed much since the Bank of England maintained its record low position on interest rates. The base rate of interest remains at 0.25%, and with it the vast majority of savings rates have continued to sit well below inflation. And the future not only looks bleak for savers, but investors too as the higher yielding FTSE 100 companies begin to show signs of strain, with factors such as currency feeding concerns that these dividends look increasingly unsustainable and so are likely to fall.

So both savers and investors face the same dilemma: how can I make the most out of my capital this summer?

Under the Spotlight

Unfortunately, for many savers longer term financial products no longer provide the 5%+ returns of yester-year, and this significant drop in headline savings rates has made it much harder to commit to tying up money for longer periods of time. As a result of this, we have seen a lot of activity this summer in the shorter term savings space, particularly into instant access and current accounts.

In addition, savers have seen interest rates stagnate and their savings being increasingly eroded with the impact of higher inflation. This has led to some having to consider taking on more risk with some of their capital, in the hope of achieving the levels of returns they have enjoyed in previous years. So we also cover some of our income and growth investment best sellers.

Current Accounts

Up until a few years ago, current accounts were infamous for their low interest rates, with most paying nothing at all on any monthly balances. However, in the last few years banks have placed an emphasis on improving their products, with some banks offering very competitive rates in order to win new customers.

Whilst the majority of these accounts place a cap on the amount that they are willing to pay interest on, the rates themselves are attractive. Therefore, if you’ve not switched for a while, it may be beneficial to compare these to your existing current account and find out how much more you could earn from your everyday cash.

The Santander 1|2|3

The Santander 1|2|3 current account provides the opportunity to receive 1.50% AER variable on your entire balance up to £20,000, a rate that is higher than the market leading instant access account (see below). It also has the added bonus of providing up to 3% cashback on various household bills including gas, electricity, water, broadband and even your Santander mortgage. This account has a monthly fee of £5, and their website allows you to compare the annual cost with the amount of interest you could earn plus any cashback on your current monthly bills.

Instant Access

An instant access account may be an attractive option for those who might need access to their cash at very short notice. These are savings accounts that pay interest and allow you to withdraw money whenever you need it. Generally, you decide how much or little you put into the account.

Ulster Bank eSavings

For those who wish to enjoy the freedom of banking on the go, along with a market leading interest rate, Ulster Bank’s eSavings may be one of the best options. The account can be opened completely online and then managed online, via their banking app or over the telephone. Ulster Bank eSavings account offers 1.25% AER variable, with no tiered interest and no minimum deposit.

According to the Bank of England, the average instant access account is currently paying only 0.15%*. Based on a balance of £50,000, the eSavings account would pay £625 per year compared to just £75 from the average account, which is an additional £550 per year.

RCI Bank Freedom Savings Account

RCI Bank Freedom Savings Account offers 1.20% AER variable gross to both new and existing customers for any amount up to £1,000,000. Although the account requires an initial payment of at least £100 within the first 30 days of opening, the account is free to use and there are no fees, penalties or tiered interest rates. RCI Bank is part of the Renault global banking group and so the first €100,000 is protected by the French deposit guarantee scheme (FGDR) rather than the UK FSCS.

Short Term Fixed Rate Bonds

For many savers, the majority of longer fixed term rate bonds simply do not offer enough of an uplift in rate to justify having your money tied up for extended periods of time. For many savers therefore, it may be beneficial to consider shorter term fix rate bonds.

Access Bank UK offer short term fixed rate bonds that provide competitive rates. In order to access these rates you must make a minimum deposit of £5,000 and each account has a maximum deposit of £500,000. Although you can only make one deposit per account, Access Bank UK doesn’t put a cap on the amount of accounts you can open at once. All deposits are eligible for FSCS protection.

1 Year Access Bank: offers an interest rate of 1.70% AER fixed for 1 year

2 Year Access Bank: provides a fixed interest rate of 1.90% AER over 2 years

Medium and Longer Term Fixed Rate Bonds

For savers willing to part with their money for a longer period of time to receive higher returns, Vanquis Bank has a selection of products offering very competitive interest rates. There is a minimum deposit of £1,000 and a maximum deposit of £250,000. No withdrawals are allowed over the course of the fixed term and all deposits are eligible for FSCS protection.

3 Year Vanquis Bank: offers an interest rate of 2.20% AER fixed

4 Year Vanquis Bank: offers an interest rate of 2.35% AER fixed

5 Year Vanquis Bank: offers an interest rate of 2.50% AER fixed

Capital At Risk

Capital at risk products allow investors to access potentially higher interest rates at the expense of accepting their capital will be at risk.

Risk versus Reward

The balance of the potential upside of higher returns versus the potential downside of losing some or all of your capital is generally known as risk versus reward. A good benchmark for assessing your investment is to compare what you could get from a fixed rate deposit over a similar timeframe, and then consider whether you are prepared to accept the level of risk to your capital in return for either a higher fixed rate, or the potential for a higher variable income.

Fixed Income Investment

Investec FTSE 100 Enhanced Income Plan

If you need to know exactly how much you will get paid, when and for how long, Investec’s FTSE 100 Enhanced Income Plan may be an option to consider. This plan offers a fixed interest rate of 4.35% per year for the fixed term of 5 years, and offers monthly income payments. The plan offers some capital protection but if the FTSE falls by more than 40% then you may lose some or all of your capital.

Higher Yield, Variable Income Investments

For those looking for higher income opportunities, the Meteor and Investec plans below offer up to 8% interest per annum, but rather than a fixed income, how much you receive is dependent on the performance of the FTSE 100 Index. Each plan also has the ability to mature early (or ‘kick out’) in the event that the FTSE has gone up by 5% or more from the second year onwards – measured each year and each quarter respectively. If the plan does not mature early, your capital will be at risk if the FTSE has fallen by more than 40% at the end of the plan term. If it has, you will lose some or all of your initial capital invested.

Meteor FTSE Monthly Income Plan: this plan has a maximum term of 10 years and offers a potential monthly income of 0.67% (equivalent to 8.04% annually).

Investec FTSE 100 Defensive Income Plan: this plan has a maximum term of 8 years and offers a potential quarterly payment of 2.0% (equivalent to 8.0% per year).

Defensive Growth Investment

The Investec Defensive Step Down Kick Out Plan is our most popular defensive investment and has the potential to return 6.25% for each year invested, provided the FTSE finishes at the required level at the end of each year. The required level is 100% of its starting value at the end of year 2, and then reduces by 5% each year thereafter, down to 65% in the final year (i.e. if can fall up to 35% and you still receive your growth return).

If the FTSE is below the required level each year then no growth will be achieved and at the end of the plan your original capital will be returned. However, it is important to note that if at the end of the plan the FTSE 100 Index has fallen by more than 40% from its level at the start of the plan, your initial capital will be reduced by 1% for each 1% fall, so you could lose some or all of your initial investment.

Compare our summer’s most popular savings and investment ideas

Compare our current accounts »

Compare instant access accounts »

Compare fixed rate bonds »

Compare fixed income investments »

Compare higher yield, variable income plans »

Compare defensive growth investments »

 

* Source: Bank of England: Bank of England average quoted household interest rates for instant access savings, 31st July 2017

 

AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

The investments in this article are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index. There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index is not a guide to its future performance.

Current accounts that give you more: cashback, interest and other benefits

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Despite us using our current account more than any other type of account, it is usually the one we review the least in terms of comparing it with the latest market offerings. With interest rates as high as 3.0% on offer, various types of cashback arrangements, as well as other financial incentives, it is quite possible that if you’ve had your current account for some time, there is a better deal on offer.

What’s more, with current account switches offering guarantees to be completed within seven working days with your new bank taking care of everything for you, it is completely different to several years ago when many were put off by the amount of work involved and keeping on top of it all. With this in mind, here we take a look at three current accounts which are proving most popular with those either making the switch, or choosing to take out a second account.

Inflation and savings rates – nowhere to hide

The rate of inflation as measured by the Consumer Price Index, rose to 2.90% in May, its highest level for nearly four years. However, four years ago you could generate this level of interest from a fixed rate bond if you were prepared to tie in for the long term, whereas now the best long term deals are way below this at around 2.40% AER. In addition, according to the Bank of England the average easy access account now pays just 0.15% – that’s a fall of 65% in just one year. This makes the latest inflationary rises a serious cause for concern and means there really is nowhere to hide for savers.

Banks offering incentives

Although historically current accounts have been well known for offering paltry rates of interest, this has changed significantly in the last few years as some of the high street banks started to see the value in offering incentives in order to get new customers. What this means today is that, provided you are usually in credit with your account, you can now be rewarded with very competitive interest rates, healthy levels of cashback on your spending, as well as a range of other benefits.

Could you get more from your current account?

Many existing current accounts pay no interest at all, so with up to 3.0% AER available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details).

Three of our most popular current accounts

Each new current account available has its own features and criteria, with different interest rates being paid for different levels of account balance depending on the offering. Most usually require a minimum amount to be paid in each month to qualify for the headline interest rate, as well as the setting up of a minimum number of direct debits. Here we take a look at three of our most popular.

TSB: 3.0% on balances up to £1,500 plus up to £120 cashback per year

TSB’s Classic Plus account offers 3.0% AER (variable) interest, paid monthly on balances up to £1,500. No interest is paid on balances above this amount and although the 3.0% is variable, it is paid ongoing (i.e. is does not drop down after a set period of time). In order to receive this rate you must pay in a minimum of £500 per month, as well as register for internet banking, paperless statements and paperless correspondence. The account also offers £5 cashback every month* just for having two active direct debits per month, with a further £5 cashback every month if you spend with your debit card at least 20 times a month. That’s up to £120 cashback each year, all with no monthly account fee.   Find out more »

Santander: 1.50% on balances up to £20,000 plus up to 3% cashback

The Santander 1|2|3 account combines a competitive rate of interest on a large cash balance, with the opportunity to receive cashback on a number of your main household bills. The account pays 1.50% AER variable on your entire balance up to £20,000, whilst you can get up to 3% cashback on selected household bills (e.g. 1% on council tax and water bills, 2% on gas and electricity, and 3% on broadband and mobile phone bills). You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is a £5 monthly account fee.   Find out more »

First Direct: £100 switch incentive plus £250 interest free overdraft

First Direct is offering £100 if you switch your everyday banking to them using the current account switch service (see below) and pay in at least £1,000 within three months of opening the account. You also benefit from a £250 interest-free overdraft, have access to their award winning UK-based customer service team, and can pay in cash and cheques at HSBC and Post Office branches. No interest is paid on balances in credit with this account. There is no cost for the first six months and although there is normally a £10 monthly account fee, there are several was of avoiding this, for example by paying at least £1,000 into your account every month or maintaining an average monthly balance of £1,000.   Find out more »

7-Day Switch Guarantee

Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.

Over 40 banks have signed up to the service (including TSB, Santander and First Direct), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster. Over 3 million account switches have been processed since its launch.

To switch or not to switch?

The 7-Day Switch therefore offers peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, provided you still meet any of the account qualifying criteria such as paying in the minimum amount required each month or set up a certain number of direct debits.

FSCS Protected

Also remember that not only do all of the accounts featured offer full banking services and have VISA debit cards available, they are offered by high street banks and so eligible deposits are covered by the Financial Services Compensation Scheme up to the deposit compensation limit of £85,000 per person, per authorised firm.

Always compare

Do not let the thought of moving your current account put you off. The competition for current accounts has rocketed in the last couple of years and millions have already made the move to a new account. So as major banks and building societies compete for your custom, always remember to compare the interest rate and any other benefits your current account offers with the best market has to offer – you may be surprised at just how much difference it could make…

 

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here for more information on First Direct’s 1st account »

Click here to compare current accounts »

 

* Offer ends 30 June 2018.

AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

Gross is the interest you will receive before tax is deducted.

5 percent fixed for 12 months – our best selling current account…

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Last updated: 25/10/2016

With more and more high interest current account providers announcing reductions to their interest rates, the 5% fixed for 12 months from Nationwide now looks even better than before. Here we take a more detailed look at the pressures savers are facing in these difficult economic conditions, as well as help reveal why the FlexDirect continues to be our best selling current account.

Nationwide FlexDirect account summary

  • 5.0% AER (4.89% gross p.a.) fixed for 12 months
  • Paid on balances up to £2,500, no interest paid above this amount
  • 1.0% AER variable on balances up to £2,500 after 12 months
  • You must pay in £1,000 per month to qualify
  • No requirement to set up direct debits
  • Contactless Visa debit card available
  • 12 month fee-free arranged overdraft available
  • Free text alerts to help you manage your account
  • No monthly account fee
  • Covered by the Current Account Switch Guarantee and Financial Services Compensation Scheme

Savings rates in dire straits

Our market leading instant access account (RCI Bank Freedom Savings Account) is currently paying 1.0% AER variable, whilst our best long term fixed rate (Vanquis 5 Year Fixed Rate Bond) will get you 1.95% AER – that’s an increase of less than 1% per year for tying up your money for five years, albeit the rate from Vanquis is fixed for the full term. Then of course there are a load of accounts offering rates in between these, mainly fixed rate bonds of different durations. It may be repeated far too often, but unfortunately it makes it no less true – savings rates are at record lows – and it would seem this at the very least, this is set to continue, and possibly get even worse.

Inflation into the mix

If record low savings rates weren’t enough to worry about, the Consumer Price Index rose from 0.6% to 1.0% in September, the biggest monthly rise in more than 2 years and its highest level for 22 months. Since this rise, less than half of all savings accounts are able to match or beat this level, which means many savers are seeing the value of their cash eroded in real terms. According to the Bank of England, the average easy access account now pays under 0.3%, and with further cuts to savings rates on the cards, inflationary rises are a serious cause for concern.

High interest current accounts

Although historically, current accounts offered little if anything in the form of interest on your account balance this has changed significantly in the last few years, and against this harsh economic backdrop for savers, it is hardly surprising that the high headline rates of interest on offer have made compelling reading. Indeed, high interest current accounts have been one of the most popular safe havens for those looking to combine all of the usual account features you would expect from a full banking service with a highly competitive rate.

5% fixed for 12 months

Top of the rate table is Nationwide’s FlexDirect account which offers 5.0% AER (4.89% gross p.a.) fixed for the first 12 months. This rate is paid on all in-credit balances up to £2,500 and you must pay in a minimum of £1,000 per month to qualify (this excludes internal transfers). After 12 months the rate reverts to 1.0% AER variable. There is no monthly account fee, and with top rates on instant access and fixed term deposits ranging between 1.0% and 1.95%, it is easy to see why this account has attracted so much attention.

Others falling short

TSB Bank also offers 5.0% AER but this is variable and is only paid on balances up to £2,000, rather than the £2,500 on offer from Nationwide. The rate is, however, paid ongoing rather than for a fixed period of 12 months. But TSB has recently announced that with effect from 4th January 2017, the rate will reduce to 3.0% AER variable and will only be paid on balances up to £1,500. This follows in the footsteps of Santander who announced back in August that the 3% top tier interest rate on its flagship 1|2|3 Account would be halved to 1.50%, taking effect from 1st November this year. Lloyds has also announced that the rate on their Club Lloyds current account will halve from 4% to 2% in January 2017.

So whilst Nationwide’s main competitors are reducing their rates, this makes the FlexDirect offering even more competitive, especially since the rate is fixed for the first 12 months. Currently we are not aware that Nationwide has any plans to reduce its rate, although they state their rates are constantly under review.

Fair Investment view

Commenting on the account, Oliver Roylance-Smith, head of savings and investments at Fair Investment Company said; “The FlexDirect from Nationwide offers a market leading interest rate on balances up to £2,500, although the £1,000 you are required to pay in each month is at the higher end compared to other current accounts offering competitive interest rates. There is also no monthly account fee, so all of the interest earned goes straight into your pocket. Although the rate drops to 1% variable after the first 12 months, this is still considerably more than most other current accounts and on a par with some of the top instant access accounts currently on offer. With the Current Account Switch Guarantee running alongside, there really is no excuse to finding out more.

Santander still the top choice on larger balances

With effect from 1st November, Santander’s 1|2|3 account offers 1.50% AER variable on all balances up to £20,000. If you were to compare this with the best instant access accounts on offer, it would be a clear market leader, albeit with the cap on the amount you can earn interest on. You can also earn up to 3% cashback on selected household bills such as council tax, gas and electricity, broadband, mobile phones and more. You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is also a £5 monthly account fee, which may be cancelled out if you make the most of the cashback on offer – their site has a simple calculator to help you work out how much cashback and interest you might earn, versus this monthly cost.

A note on the Personal Savings allowance

Remember that since the start of the current tax year (6th April 2016), most people receive a personal tax free allowance for interest earnings on savings. For basic rate taxpayers this is set at £1,000 each tax year, whilst higher rate taxpayers get an allowance of £500. Beyond these allowances, basic rate taxpayers will pay 20 percent on savings income and higher rate taxpayers pay 40 percent. Additional rate tax payers will not receive a personal allowance. Also note that income from ISAs does not count towards your Personal Savings Allowance (it’s already tax-free).

An important part to play for savers?

Even with the Personal Savings Allowance, there is no doubt that every penny counts in these days of record low rates, creeping inflation and economic pressures all round, and so the returns on offer from the best high interest current accounts cannot be ignored. 5% on £2,500 equates to £125. Our market leading instant access currently offers 1.0% and so you would need £12,500 in that account to achieve the same level of return. Although these are first and foremost current accounts, they also have every right to be considered amongst the range of options for savers.

7-Day Switch

Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.

Over 40 banks have signed up to the service (including Nationwide and Santander), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster.

To switch or not to switch?

The 7-Day Switch rules therefore offer peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – although Santander requires you to have at least two active direct debits, Nationwide does not and so if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, thereby leaving everything you already have in place. You will of course have to make sure you pay in the minimum amount required each month in order to earn the level of interest on offer.

Could you get more from your current account?

Many existing accounts pay no interest at all, so with up to 5.0% available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details). As a minimum, these accounts should be considered an important contributor to the overall returns from your savings.

 

Click here for more information on Nationwide’s FlexDirect account »

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here to compare high interest current accounts »

 

Please note that all rates and charges quoted are subject to change.

Overdrafts are only open to customers aged 18 or over and are subject to approval.

AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

Gross is the interest you will receive before tax is deducted.

Summer sizzlers: our selection of the hottest deals on offer this summer

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Last updated: 12/09/2016

As the Olympic Games continue to keep us gripped with excitement, it’s not just the GB Team that’s sizzling this summer. The news that the Bank of England base rate has fallen to a new record low has meant the need for both savers and investors to review their options has really heated up. So to help you stay on top of all the action, we bring you a selection of the hottest savings and investment deals on offer this summer.

Interest rates

Since the recent reduction to a new record low for the Bank of England’s base rate, savings rates have started to fall at a significant pace. Needless to say the outlook for savers is not good, but it’s not just savings rates that are falling. Bond yields also face record lows whilst the share prices of many of the higher yielding FTSE 100 companies have gone up as more investors search for income. So the outlook is bleak for both savers and investors, and the need to make the most out of your capital has suddenly become priority number one this summer.

So what’s hot?

For many savers, longer term savings rates are not offering enough of an increased rate to justify tying your money up for longer, and so we see most activity is in the short term space, from instant access up to 2 years. Whilst as you might expect, with interest rates coming down, many savers inevitably start to consider taking on more risk with their capital in the hunt for higher returns, so we also cover some of our income and growth investment best sellers.

Combining every day banking with up to 5.0% interest

The fact remains that loyal bank customers are rarely rewarded and so usually face far lower rates on their savings compared to those who shop around. Well this is now also true of current accounts. Although historically these accounts have been renowned for offering very low rates of interest, this has started to change significantly in the last few years with some offering very competitive returns indeed.

Low monthly balance top pick – Nationwide’s FlexDirect account pays 5.0% AER fixed for the first 12 months on all in credit balances up to £2,500. Thereafter the rate reverts to 1.0% AER variable.

Higher monthly balance top pick – Santander’s 1|2|3 account pays 3.0% AER variable on your entire balance up to £20,000 provided your balance is at least £3,000. This rate is set to change to 1.50% AER on all balances up to £20,000 from 1st November 2016. It also offers some competitive cashback rates on a wide selection of household bills. A £5 per month account fee applies.

Instant access – market leading 1.20% AER variable

When longer terms savings rates are low, instant access accounts see far greater inflows as savers use this as a safety net whilst reviewing other options. The Freedom Access Account from RCI Bank is a market leading instant access account paying 1.20% AER variable and you can save from £100 up to £1m, with free and unlimited payments and withdrawals. RCI Bank is part of the Renault global banking group and so the first €100,000 equivalent is protected by the French deposit guarantee scheme (FGDR) rather than the UK FSCS.

For those where the UK FSCS is more of a priority, Aldermore’s Easy Access Account offers 1.00% AER variable on balances from £1,000 to £1m, whilst the B account is an innovative new banking service from Clydesdale and Yorkshire Banks which combines a current account with an instant access account, the latter offering 1% AER variable on all balances. The interest rates alone are worth a closer look but this account might particularly appeal to the more technically savvy saver due to the intuitive B banking app which forms part of the overall proposition.

Fixed rate bonds – short terms hit the top spots

Whilst instant access offers 1.20%, a top deal on a 5 year fixed rate is only offering 1.0% per year more at 2.20% AER. These are without doubt some of the lowest long term fixed rates in history and this 1% margin has resulted in more money staying in shorter term fixed rates. Here are our current top picks for those who can tie their money up for between 6 months and 3 years, all of which are eligible for the UK’s FSCS:

6 months top pick: Habib Bank 6 month Fixed Rate Deposit, offering 0.80% AER

1 year top pick: Bank of Cyprus 1 Year Fixed Rate Bond, paying 1.30% AER

2 year top pick: Bank of Cyprus 2 Year Fixed Rate Bond, paying 1.40%

3 year top pick: Bank of Cyprus 3 Year Fixed Rate Bond, paying 1.50%

The minimum deposit with Bank of Cyprus accounts is £10,000 whilst for Habib Bank it is £1,000. For those looking for a 1, 2 or 3 year fixed rate account with a lower minimum, Aldermore Bank pays 1.40% AER over 3years, 1.30% AER over 2 years and 1.20% AER fixed for one year, all with a minimum of £1,000.

Long term savings alternative – potential 24% growth return

For those looking for the potential for higher growth and are prepared to tie their money up for the longer term, the Investec 6 Year Defensive Deposit Plan offers an alternative that some savers might find attractive. By linking your return to the FTSE 100 Index, this deposit plan offers the potential for a 24% fixed return, which is paid provided the value of the Index at the end of the plan, is higher than 95% of its value at the start of the plan (subject to averaging). So the FTSE can fall up to 5% and you still receive the fixed return. However, if the Index is lower, you will only receive a return of your original capital.

The best long term fixed rate savings bonds are paying around 2.20% AER whilst by linking your deposit to the FTSE, if this Deposit Plan pays out the 24% return is equivalent to 3.65% AER. With record low longer term fixed rates forcing some savers to consider a wider range of options, the combination of capital protection plus the potential for a high growth return could be a compelling opportunity. Taxpayers can also benefit from tax free growth as the plan is also available as an ISA.

Fixed income investment

Another consequence of this sustained period of low longer term fixed rates is that savers start to consider taking on more risk with their capital in the hunt for higher returns. One such plan that has been popular in this area is the Enhanced Income Plan from Investec Bank. Unusually for an investment, it has a fixed term and offers a fixed income each year, paid to you regardless of the performance of the stock market. It also pays income each month which is the most popular payment frequency. The latest issue pays 4.92% per year, paid as 0.41% each month.

Also unusual for an investment is the inclusion of some capital protection, or ‘conditional capital protection’. This means that your initial capital is returned at the end of the investment unless the FTSE falls by more than 50% during the fixed term of the plan. If it does, and the Index also finishes below its starting level then your original capital will be reduced by 1% for each 1% fall, so you could lose some or all of your original investment.

Up to 6.0% investment income, quarterly payments

The Focus FTSE Quarterly Contingent Income Plan offers up to 6% per year which is higher than the income on the Investec plan however it is not fixed, but rather dependent on the performance of the FTSE 100 Index. A quarterly payment of 1.50% is made provided the value of the Index at the end of each quarter is at or above 75% of its value at the start of the investment. If the Index is below 75% of its opening level, no income payment will be made for that quarter.

Your initial investment is returned in full unless the FTSE has fallen by more than 40%, measured at the end of the fixed term only. If it has fallen below this level, capital will be reduced by 1% for each 1% fall and so you could lose some or all of your initial investment.

Both of these plans are available as an ISA and accept ISA transfers, in which case your income would be tax free.

Defensive growth plans

Finally, in the investment growth space, defensive plans have been popular on the back of the UK’s decision to leave the UK and the uncertainty around what impact this might have on our growth and economic prospects. These defensive plans offer the potential for investment level returns even if the stock market goes down, in some case by up to 50%. They are therefore proving popular with investors concerned about the historically high level of the FTSE and would therefore like to include a defensive element to their investment. This plan may appeal to those who think the FTSE might fall slightly, stay the same, or rise in the coming years but not significantly.

Defensive Kick Out top pick: Investec’s FTSE 100 Step Down Kick-Out Plan offers the opportunity for 8.0% for each year invested (not compounded) even if the FTSE falls up to 20% over the term of the plan. Capital is at risk is the FTSE falls by more than 50%.

Fixed term defensive growth top pick: Investec’s FTSE 100 Defensive Growth Plan offers a 33% fixed return at the end of the plan, provided the Index it at least half its value at the start of the plan (i.e. it can fall up to 50% and you still receive the 33%, along with a full return of capital). Your capital is at risk if the FTSE has fallen by more than 50%, in which case you could lose some or all of your initial investment.

 

Compare our Top 3 current accounts »

Compare instant access accounts »

Compare fixed rate bonds »

Compare income investments »

Compare growth and defensive growth investments »

 

AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year. Gross is the interest you will receive before tax is deducted.

No news, feature article or comment should be seen as a personal recommendation to invest. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular plan. If you are at all unsure of the suitability of a particular product, both in respect of its objectives and its risk profile, you should seek professional advice.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. Always remember to check whether any charges apply before transferring an ISA.

The investments in this article are structured investment plans that are not capital protected and are not covered by the Financial Services Compensation Scheme (FSCS) for default alone. There is a risk of losing some or all of your initial investment due to the performance of the FTSE 100 Index or shares listed within the Index. As share prices can move by a wide margin, plans based on the performance of shares represent higher risk investments than plans based on the FTSE 100 Index as a whole.

There is also a risk that the company backing the plan or any company associated with the plan may be unable to repay your initial investment and any returns stated. In addition, you may not get back the full amount of your initial investment if the plan is not held for the full term. The past performance of the FTSE 100 Index or shares listed within the Index is not a guide to their future performance.

Current account focus: our Top 3 high interest current accounts

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Last updated: 27/09/2016

Although we use our current account more than any other, it is often the one that we review the least in terms of comparing it with the latest the market has to offer. But with interest rates as high as 5.0% on offer, various types of cashback and other financial incentives, along with a 7-Day Switch service that offers peace of mind to those that do switch, the market for current accounts is the best its ever been. So here we take a look at the three accounts which are proving most popular with those either making the switch, or choosing to take out a second account.

High interest

Historically, current accounts have been renown for offering paltry rates of interest, and it is only fairly recently that this has significantly started to change. What this now means is that, provided you are usually in credit with your account, you can now be rewarded with very healthy rates of interest indeed. Not only do all of the accounts featured offer full banking services and have VISA debit cards available, but because of the interest rates on offer the amount that can be achieved when compared with leading instant access and short term fixed rate bonds, can be compelling in its own right.

Current account versus savings account

Therefore, although these should be technically described first and foremost as current accounts, they also have every right to be considered amongst the range of options for savers, especially since they are predominantly offered by the main high street banks and building societies and so eligible deposits are covered by the Financial Services Compensation Scheme.

Could you get more from your current account?

Many existing accounts pay no interest at all, so with up to 5.0% available it is always worth comparing what the market has to offer. Staying put simply because you have all of your direct debits set up is no longer a valid reason, especially since the introduction of the current account switch guarantee (see below for further details).

Our top three selections

Each account has its own features and criteria, and most usually require a minimum amount to be paid in each month to qualify for the headline interest rate, with different rates being paid for different levels of account balance. Here we take a look at our three most popular high interest current accounts.

5.0% on balances up to £2,500 for 12 months

Nationwide’s FlexDirect is our most popular current account, mainly due to the level of interest it pays on all in-credit balances up to £2,500. The interest rate is 5.0% AER (4.89% gross p.a.) which is fixed for the first 12 months of the account being opened. To receive this rate, you must pay in a minimum of £1,000 per month (excluding internal transfers). There is no monthly account fee, a fee-free overdraft is included for the first 12 months and you can manage your account online or via automated telephone banking. After 12 months the rate reverts to 1.0% AER variable.

Fair Investment view: “The FlexDirect from Nationwide offers a market leading interest rate on balances up to £2,500 although the £1,000 you are required to pay in each month is at the higher end. There is also no monthly account fee, so all of the interest earned goes straight into your pocket. Although the rate drops to 1% variable after the first 12 months, this is still considerably more than most current accounts and not that far off some of the top easy access accounts currently on offer.”

5.0% variable on balances up to £2,000

TSB’s Classic Plus account also offers 5.0% AER (variable) interest, payable on balances up to £2,000. No interest is paid on balances above this amount and although the 5.0% is variable, it is paid ongoing (i.e. is does not drop down after a set period of time). In order to receive this rate you must pay in a minimum of £500 per month, as well as register for internet banking, paperless statements and paperless correspondence. The account also offers 5% cashback on your first £100 of contactless or Apple Pay payments each month (this offer ends December 2016 and terms and conditions apply).

Fair Investment view: “The 5.0% headline rate matches that from Nationwide’s account although it is a variable rate (rather than fixed) and is paid on a slightly lower account balance of £2,000 – however, the amount you are required to pay in each month is at the lower end of the high interest current accounts available. As with Nationwide’s account, there is no monthly account fee and the fact that the variable interest rate continues without a time limit could make this an attractive option for those looking beyond 12 months.”

Up to 3.0% interest and 3% cashback

The Santander 1|2|3 account combines a competitive rate of interest with the opportunity to receive cashback on a number of your main household bills. You will receive 3.0% AER variable once your balance is at least £3,000, payable on your entire balance up to a maximum of £20,000, with lower rates of interest paid on balances of less than £3,000. Please note that interest paid on the account will change to 1.50% AER on all balances up to £20,000 from 1st November 2016. You can also earn up to 3% cashback on selected household bills such as council tax, gas and electricity, broadband, mobile phones and more. You must pay in at least £500 per month and have at least two active direct debits to receive interest and cashback. There is a £5 monthly account fee.

Fair Investment view: “Because of the way the interest is calculated, this account is likely to appeal to those with higher in credit balances, particular those who regularly have over £3,000 available. For example, if you had £4,167 in your Santander 1|2|3 account, you would earn the same interest as you would be paid on 5.0% AER on a balance of £2,500, whilst this account continues to pay interest on higher credit balances up to £20,000. So if you’ve got savings of £3,000 or more, this account could offer a compelling overall rate of interest, as well as cashback on your monthly bills.”

7-Day Switch

Apart from the low interest rates generally on offer, one of the main reasons many of us have stayed with our current account provider far longer than other type of account, is the fear that something would go wrong with the direct debits associated with our account. However, since the introduction of the current account switch service in September 2013, the whole process of switching banks is easier and will now be completed in seven working days – the 7-Day Switch.

Over 40 banks have signed up to the service (including Nationwide, Santander and TSB), which makes sure that all outgoing payments, such as standing orders and direct debits, will be transferred across to your new bank on your behalf. The service also guarantees that should any incoming payments be sent to your old account in error, these will be automatically redirected to your new account for up to 36 months after your switch date. This means the banks do all the hard work for you, making switching smoother and faster.

To switch or not to switch?

The 7-Day Switch rules therefore offers peace of mind to anyone considering a switch from their current account provider. However, you don’t necessarily have to switch your current account – Santander is the only provider in our top three which requires you to have any active direct debits (at least two), and so if maximising interest is your top priority, you could also consider taking one of these accounts out in addition to your existing current account, thereby leaving everything you already have in place. You will of course have to make sure you pay in the minimum amount required each month in order to earn the level of interest on offer.

Always compare

Do not let the thought of moving your current account put you off. The competition for current accounts has rocketed in the last couple of years and hundreds of thousands of people have already made the move to a new account. So as major banks and building societies compete for your custom, always remember to compare the interest rate and any other benefits your current account offers with the best market has to offer – you may be surprised at just how much difference it could make…

 

Click here for more information on Nationwide’s FlexDirect account »

Click here for more information on TSB’s Current Plus account »

Click here for more information on Santander’s 1|2|3 account »

Click here to compare high interest current accounts »

 

AER stands for Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once each year.

Gross is the interest you will receive before tax is deducted.