Archive for the ‘Instant and easy access savings’ Category

Latest inflation, wage growth, interest rates and what this means for your savings

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The latest figures indicate that inflation bounced right back up to 2.9% in the month of August. This means that the headline rate of inflation continues at a level well above the Bank of England’s 2% target. What’s making matters worse is that earnings are not increasing anywhere near enough to keep pace, thereby increasing the financial pressures felt by many households in the UK. So it is vital to consider all of your options in light of the impact inflation and sluggish wage growth could have on your savings. We therefore take a closer look at what is happening in the UK and explore the possible ways to get the most from your savings.

Inflation Latest

UK inflation, as measured by the Consumer Price Index (CPI), dropped unexpectedly from 2.9% in May to 2.6% in June and remained at 2.6% for July. However, according to the latest figures from the Office of National Statistics (ONS), inflation returned to the heights of 2.9% in August.

The increase to 2.9% recorded in May and again in August 2017 is the highest inflation level since April 2012, the rate having slowly increased after a much welcome period of very low inflation during 2015. It may shock many savers to learn that inflation sat at just 0.9% a short 12 months ago.

Economists who witnessed inflation balloon by 2% in a year do not forecast a bright future for the next few months, as The National Institute of Economic and Social Research (NIESR), believe it will reach 3% by the end of 2017. This widely accepted pessimism was underpinned by the Bank of England’s (the Bank’s) Inflation Report in August, which predicted that inflation will likely peak at 3% as soon as October of this year.

The Future for Interest Rates

In line with the Bank of England’s recent summary, the Monetary Policy Committee (MPC) predictably voted by a majority of 6-2 to maintain interest rates at the record low of 0.25%. The recent decline in inflation may fill some with confidence that the Bank will raise interest rates soon. However, Charlie Bean, the former Bank of England’s deputy mused “it looks like the economy might be slowing, it seems like an odd time to increase interest rates”.

Upon review of the slow growth in the economy and the current rate of inflation, NIESR predicts that the Bank may increase interest rates in the first quarter of 2018, whilst Stuart Green of Santander Global Corporate Banking said that he “did not expect a rate hike to happen before 2019”. Either way, this does not fill us with a great amount of confidence.

Uncertainty

Some have suggested that the interest rate will not increase until after Brexit negotiations are finished and judging by the latest reports about the negotiations, it seems we could be waiting a long time before the Band of England decide to raise interest rates again.

Even though the question is not ‘if’ the Bank of England will increase interest rates but ‘when’, the rate is likely only to increase to 0.5%, and so the impact on savings rates is likely to be minimal in the short term, and only very gradual over time.

Lagging Wage Growth

With inflation and the question marks over whether to increase interest rates, UK households are enduring a prolonged period of sluggish wage growth. In the last four months wage growth has experienced the biggest drop since August 2014.

Unfortunately, the pressure on incomes is likely to continue as the latest forecast for pay rises sits at just 1%. Households all over the country are feeling the pinch and their wages just do not go as far as they used to, resulting in people spending less money. UK consumer spending is down for the third month in a row.

With less disposable cash, fewer people have been able to put money aside into their savings, and it is no secret that the less you put into savings, the less you will get from it. Ultimately this leads us to the same conclusion: it remains as important as ever to find the best returns on offer.

Savings Products

Fixed rate bonds have historically been the cornerstone product for many savers. However, the rates on offer from these accounts have probably changed more than any other in recent years. Continued reductions in the returns from fixed rate bonds have seen many savers suffering significant falls in the income received from their savings.

At the time of writing, there is not a single fixed rate bond that matches the rate of inflation, and as a result, many savers are losing money in real terms. What’s more, the best savings rates currently on offer from an instant access account provides around 1.25% AER, which sits well below the rate of inflation.

Do Your Homework

Despite the mounting pressure from potentially increasing inflation and sluggish wage growth, it is important to take the time to make the right decision for your financial circumstances. It may be appropriate to review the current amount of interest paid on all your savings and compare this with other savings accounts on the market.

Although the current crop of savings accounts do not come close to matching inflation, if you do not want to put your capital at risk then there are not many options available. However, making sure you have found the best deal for your savings has to be a top priority.

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Taking on More Risk or Face Losing Money in Real Terms

The harsh reality in today’s economic landscape is if you do nothing, your money is losing value in real terms so long as the interest rate you receive is lower than inflation. One course of action to combat the effect of inflation is to consider a change of strategy.

The current inflationary environment, along with the slow wage growth and poor interest rates, means that savers may have to consider taking on more risk with some of their capital, in order to try and replicate previous interest rates and secure better returns from their capital.

Capital at Risk Products

One alternative for savers is to consider capital at risk investment plans. These products offer the opportunity to secure competitive returns to potentially beat inflation. Though the capital is not directly invested in the stock market, the potential returns are generally linked to the performance of the FTSE 100 and so offer the potential for competitive rates of return when compared to fixed term bonds.

One such investment plan uniquely offers a fixed monthly income, paid to you regardless of what happens to the stock market, with only the return of your initial capital dependent on the performance of the FTSE 100 index (rather than your income as well).

Risk Versus Reward

Of course, it is important to note that these products do not provide the capital invested with complete protection, and there is a risk of losing some or all of the initial investment. When it comes to capital at risk products there is always a question of risk versus reward.

The principle of risk versus reward means that the search for higher fixed returns usually leads to the need to consider putting your capital at risk. A good benchmark for assessing your fixed rate investment is to compare what you could get from a fixed rate deposit over a similar time frame, and then consider whether you are prepared to accept the level of risk to your capital in return for the higher fixed rate.

In Conclusion

However you decide to proceed, the impact of lagging wage growth, low savings rates and the possibility of soaring inflation cannot be ignored. Although savings accounts offer complete protection for your capital, it seems that the record low savings rates are here to stay for the foreseeable future. This could result in savers’ capital diminishing in value and losing money in real terms but before considering capital at risk products, you must make sure you fully understand all of the risks involved before proceeding.

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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 investment. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The fixed income investment mentioned is a structured investment plan that is not capital protected and is 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. There is 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. This investment does not include the same security of capital which is afforded to deposit accounts.

Inflation falls but what does this really mean for savers?

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Figures launched today reveal that UK inflation fell to 2.6% from its five year high of 2.9% the previous month. However, despite this fall, there is gathering consensus that it could rise again in the second half of this year. This latest level also means that inflation is still well above the 2% target set by the Bank of England, and so it remains as important as ever to review your options in light of the impact inflation can have on your hard earned cash.  We take a closer look at what the latest rate of inflation really means when making decisions around our savings and investments.

Inflation latest

UK inflation, as measured by the Consumer Price Index (CPI), dropped unexpectedly today to 2.6% according to the latest figures from the Office of National Statistics (ONS). This represents a fall of 0.3% from its previous five year high of 2.9% in the previous month – its highest level since April 2012. The rate has climbed gradually following a period of very low inflation during 2015. The latest figures provided by the CPI show there has been an increase of almost 2% over the last 12 months.

And yet despite this latest reduction, the forecast for inflation for the remainder of the year does not look bright either. Paul Hollingsworth, a UK economist at Capital Economics, explains that “it takes time for rises in producer prices to feed through to prices in the shops … we think that CPI inflation will rise a bit further in the second half of the year, peaking at about 3.2% in the fourth quarter.” Though Mr Hollingsworth accepts that inflation is likely to drop back down in 2018, the UK will feel the pinch in the second half of 2017.

The future for interest rates

In June the Bank of England predictably decided to keep interest rates at their record low of 0.25%. However, what was not so predictable was the fact that three Bank of England policymakers wanted to raise interest rates. In addition, Andy Haldane, Chief Economist and the Executive Director of Monetary Analysis and Statistics at the Bank of England, reportedly proposed that the Bank should increase rates “at a gradual pace and to a limited extent”. So although interest rates remain low, the deeper split with the Bank of England’s committee illustrates a potential rise in the near future and perhaps sooner than you might think. Whether the latest fall to the headline rate of inflation will dampen this sentiment we will have to wait and see.

Pressures mounting on households

Though, for right now, the status quo remains the same. The lowest interest rate on record coupled with relatively high levels of inflation when taking a five year view, is a combination which will make life difficult for the average UK household. Despite recent reports from the ONS that unemployment fell, wage growth is slipping to 1.8 per cent. Weak wage growth and high inflation rates means less disposable income for households, making it harder for the average UK household to make ends meet, let alone put enough money into their savings.

Impact on saving

Higher headline rates of inflation are always bad news for savers as the value of the money they hold in their accounts is eroded more quickly. The knock-on effect of higher inflation is that savings accounts will not pay enough interest to beat inflation, and this is already the case.

Whatever happens to future interest rates, with inflation currently running at 2.6%, basic rate taxpayers with the full Personal Savings Allowance available need to achieve at least this rate to match inflation, whilst taxpayers without the Personal Savings Allowance need to achieve at least 3.25% and higher rate taxpayers considerably more. A review of the savings rates we currently have on offer shows rates of around 1.25% AER on instant access, 1.70% AER and 1.90% AER for one and two year fixed rates respectively, around 2.20% AER for a three year fixed rate and 2.42% AER if you fix for five years.

This means there are no cash savings products currently on offer that get anywhere close to the rate of inflation, ensuring that with deposit based savings, you are losing money in real terms.

Always compare

Regardless of what inflationary pressure there is, the best course of action is to check the amount of interest paid on all of your savings and then take the time to compare your current savings accounts with what is currently available in the market. Even though savings rates do not currently stack up against inflation, if you want to maintain full capital protection with your money there are limited alternative options out there. But making sure the cash deals you do have are competitive has to be priority number one.

Lose money in real terms versus taking on more risk

The risk of doing nothing is that your money is losing value in real terms for the entire time that the interest rate paid is less than inflation. Due to the amount that savers have to earn to match inflation, it may be time for a change of strategy in relation to your savings. But whilst the combination of low savings rates and the potential for continuing high inflation may force more of us to consider investing, this raises the difficult question of taking on more risk in an attempt to replicate historical levels of income enjoyed from cash based products.

Beating inflation by putting your capital at risk

By putting your capital at risk you open up opportunities for potentially higher returns which in turn could combat any future rises to inflation. Although most investments only offer a variable income, the fixed monthly income available from Investec’s FTSE 100 Enhanced Income Plan has been a very popular choice with our investors. The current issue pays 0.3625% per month (equivalent to 4.35% per year) and has a five year fixed term. This plan is available as an ISA and also accepts ISA transfers and non-ISA investments. The plan also includes conditional capital protection, so your capital is returned at the end of the fixed term unless the FTSE 100 Index falls by more than 40%.

Risk versus reward

It is important to remember that unlike deposit based savings products, this plan puts your capital at risk and if the FTSE does fall more than 40%, you could lose some or all of your initial capital. Also, since it is an investment rather than a deposit-based plan, your initial capital is not covered by the Financial Services Compensation Scheme should the bank default.

In conclusion …

Whatever route you decide to take, there is no escaping the impact of continuing low savings rates and falling income levels, all to be compounded by the prospect of inflation continuing well above the level of interest paid on savings accounts. It seems the trade off for capital security for some time to come will be low rates of interest and in all likelihood a negative return in real terms, whilst for those considering using some of their savings to invest, you must make sure you fully understand all of the risks involved before proceeding.

 

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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 investment. Fair Investment Company does not offer advice and any investment transacted through us is on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The Investec Enhanced Income Plan is a structured investment plan which is not capital protected and is 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. There is 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 any shares listed within the Index is not a guide to their future performance. This investment does not include the same security of capital which is afforded to a deposit account.    

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.

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

Savings Focus: Ulster Bank launches market leading instant access

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Ulster Bank’s latest release of their eSavings instant access account has made a firm statement to the savings market in the UK – to be market leading. Whilst RCI Bank has long been at the forefront of instant access rates with their popular Freedom Savings Account, Ulster Bank looks set to give them a run for their money, so here we take a closer look at what this simple and yet highly competitive account has to offer.

Market leading rate: 1.25% AER Variable

The most impressive feature of the account is the rate. Ulster Bank’s eSavings account is currently offering 1.25% AER variable gross, which is market leading for an instant access account in the UK.

Earning you more

According to the Bank of England*, the average instant access account is currently paying only 0.15%, and so there are hundreds of thousands of savers out there who could benefit from the rate currently on offer from the eSavings account. Assuming a balance of £50,000, this account would pay £625 per year compared to just £75 from the average account – that’s an additional £550 per year.

One simple rate

Unlike other accounts, there are no bonus periods or tiered interest rates, just one simple market leading rate across all of your balance. Interest is calculated daily, and paid on the last business day of the month.

No minimum – start saving from just £1

There is no minimum deposit required to open the account, so you start saving from just £1. Although there is a maximum balance, this is set at £5m so should not affect many.

Instant access

The eSavings account is an instant access savings account which means that you can withdraw money at any time and no notice is required. You can withdraw money by online transfer, via the mobile app or through telephone banking. There are daily withdrawal limits in place, which are currently £20,000 per working day for payments made via online banking, and £10,000 per working day via telephone banking. You are able to transfer more than your daily limit by sending your instruction in writing.

Managing your account

You can manage your account online through Anytime Internet Banking, by telephone banking or via the mobile app. You must register for the Anytime Internet Banking service to manage your account via online, telephone or on the mobile app.

Available to all

Provided you are aged 18 or over and a UK resident, this account is open to all savers, both new and existing customer of Ulster Bank.

Easy to apply

The account has to be opened online but only takes a few minutes to apply.

Financial Services Compensation Scheme

Ulster Bank Limited is part of the Royal Bank of Scotland group and is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority. As a UK regulated bank, it is also a member of the Financial Services Compensation Scheme (FSCS). The Scheme can pay compensation to customers if they are eligible and Ulster Bank Limited is unable to pay claims against it, for example if it ceases to trade or becomes insolvent. The scheme will cover up to £85,000 per person for money held on deposit. For further information about this protection you can read ‘How FSCS protects your money’ or you can visit the FSCS website.

 

Click here to find out more about the Ulster Bank instant access account » 

 

* Bank of England average quoted household interest rates for instant access savings, 7th June 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.

Gross rate is the interest rate you are paid without the deduction of income tax. The account does not deduct tax from the interest paid. The tax treatment may be subject to change in the future and depends on your individual circumstances.

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.

Income versus Inflation: consider your options carefully

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Last updated: 14/02/2017

As if last month’s inflation increase to its highest level for 22 months was not bad enough, the talk this month of it possibly spiking to 4% or higher next year on the back of the Brexit vote, has created a number of serious concerns for both savers and investors. The result is that the income we generate from our capital is going to become more important than ever. With this in mind, we take a closer look at the impact the ongoing economic climate could have on anyone looking to take an income from their capital, as well as review some of the more popular options being considered by income seekers.

Inflation on the rise

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. Although it is still some way off the Bank of England’s inflationary target of 2%, there also seems to be a general consensus that things are likely to get worse on the inflationary front, before they get better.

“Savings rates at record lows” – no news there then…

So, as if record low savings rates weren’t enough, this recent spike to the headline rate of inflation has added further pressure to the already difficult conditions that savers have had to endure in recent years. In fact, further to this rise, less than half of all savings accounts on offer can either match or beat inflation, resulting in more and more savers seeing the spending power of their cash being eroded. According to the Bank of England, the average easy access account now pays under 0.3%. So with further cuts to savings rates on the cards, inflationary rises are a serious cause for concern.

More bad news for savers

Savers are also facing more bad news since not only did the Bank of England’s cut to the base rate in August to 0.25% offer little hope of savings rates increasing any time soon, this move also had no impact on the pound, which has since fallen significantly against many of the major currencies. Most notably is the fall of sterling against the dollar, which recently saw a 31 year low against our North Atlantic neighbours, as the reality of a hard exit from Europe starts to take hold.

Serious concerns for those in retirement

Whilst a poor exchange rate boosts export orientated businesses and manufacturing, it also drives up inflation as the price of imports rise, with the most affected likely being food, then goods and services. This means that those in retirement will be hit particularly hard since they generally spend higher proportions of their income on these essentials. In fact, inflation is consistently cited as one of the most serious concerns for pensioners, along with the cost of care, running out of money and future changes to the state pension.

How high could inflation go? – the impact of a ‘hard’ Brexit

Experts agree unanimously that the fall in the value of the pound is likely to drive prices up, and the National Institute for Economic Research expects consumer price inflation to peak to 4% in the second half of next year, a significant jump from its current level. Some fund managers believe it could go even higher, possibly reaching 5%. This also means that the Bank of England is very unlikely to increase interest rates, with some suggestions that they will remain at their record low 0.25% until at least 2019.

You must take a view on inflation

This all combines to suggest an extended period of tough times for savers and is perhaps going to be one of the most difficult couple of years for anyone relying on income generated from capital, with cash savers undoubtedly hit the hardest. Although forecasts about short term changes could prove wrong, savers should be wary of focusing on the short term when it is the longer term impact of inflation which causes the most damage.

Remember, inflation is a backward-looking measure, i.e. it measures the rate of inflation over the last 12 months. It tells us little about what will happen in the next 12 months, let alone looking beyond this timeframe, and yet 1,000s of us each day make decisions which tie us in for much longer periods without considering its impact. You must take a view on the impact inflation might have, before you act.

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 taxpayers 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).

Income options and your net return

The net return on your capital is the amount you receive after tax and inflation has been taken into account. Thanks to the Personal Savings Allowance, many savers have had the impact of tax on their returns negated. However, inflation is still a critical factor, which is why the current economic backdrop should play an important role in deciding which route you decide to take with your capital. We therefore take a look at some of our most popular income options, and see how their returns stack up against the rising cost of living.

Fixed rate bonds

Historically the cornerstone product for many savers, these accounts have probably suffered more than any other in recent times. Consistent reductions in the returns from both short and longer term fixed rates have seen many savers facing significant falls (more than half) in the income they have enjoyed from their maturing fixed rate, when compared to the best on offer from bonds with the same duration available at maturity.

Savers face losing more than 50% of their income

One group that continues to face losing more than 50% of their income is the thousands of savers in the current crop of five year fixed rates that will mature in the coming months. These savers will have enjoyed a fixed rate of interest for the last five years, for example Scottish Widows Bank was paying 4.60% AER. By comparison, our best five year fixed rate currently on offer, from Masthaven Bank, only offers 2.06% AER. That’s a reduction of a staggering 2.54% per year, equivalent to a fall in income of 55%. Needless to say there are not many of us who can withstand this sort of drop in income without it having a significant impact.

To fix or not to fix?

The picture is a similar one for shorter term fixed rates. The best 1 and 2 year fixed rate bonds are currently paying around 1.31% to 1.58%, and although all of these rates are higher than the current rate of inflation, this will not provide a real return if either you are having to use the income to supplement your cost of living (so the actual value of your capital is being eroded), or inflation rises in the coming months and years. With such sharp falls in the level of interest on offer compared to a few years ago, this also means more savers will need to use capital to supplement their income, making their situation even worse over time.

Should you ultimately decide to commit to a fixed rate, then before applying make sure you fully consider the current economic conditions and the impact they might have over the full term of your fixed rate. There are clear inflationary pressures at the moment so you should be confident that rises to the cost of living will not increase significantly during the fixed term period, otherwise any inflation beating returns may well evaporate.

Beware the instant access trap

So as you can see, fixed rate bonds remain at record lows and inflation aside, it is the fall in income that savers are experiencing, especially from longer term fixed rates about to mature, that is causing the greatest concern. This has also resulted in a number of maturing fixed rate bondholders moving away from medium to longer term fixed rates in favour of instant access accounts, on the basis that something might happen relatively soon which will then spur them on to taking further action. This course of action currently offers little or no prospect of any real growth on your capital, your income will be considerably lower than from a fixed rate bond, interest rates are unlikely to go anywhere for some time, and should inflation move upwards as expected, this could prove to be a very disastrous strategy indeed.

Moving up the risk spectrum

The reality therefore is that savers sitting in cash will therefore continue to struggle to generate a real return, regardless of whether they remain in instant access savings or commit to a fixed rate of interest. This is likely to result in a rise in the numbers looking towards riskier assets to stand any chance of generating an inflation-adjusted real return, especially for income seekers who need to maintain a higher level of income to support their cost of living.

Savers looking to investments

Whilst the combination of low fixed rates and the potential for high inflation may force more of us to consider investing, this raises the difficult question of taking on more risk in an attempt to replicate historical levels of income enjoyed from deposit based products. Although most investments only offer a variable income, the fixed monthly income (currently 0.42% per month, equivalent to 5.04% per year) from Investec’s FTSE 100 Enhanced Income Plan has been a very popular choice with our investors. The plan also includes conditional capital protection, so your capital is returned at the end of the fixed term unless the FTSE 100 Index falls by more than 50%. This plan is available as an ISA and also accepts ISA transfers and non-ISA investments.

Risk versus reward

It is important to remember that unlike deposit based savings products, this plan puts your capital at risk and if the FTSE does fall more than 50%, you could lose some or all of your initial capital. Also, since it is an investment rather than a deposit-based plan, your initial capital is not covered by the Financial Services Compensation Scheme for default.

In conclusion …

Whatever route you decide to take, there is no escaping the impact of continuing record low savings rates and falling income levels, all to be compounded by the prospect of sharp rises to inflation and the uncertainty that may come with our exit from the European Union. It seems the trade off for capital security for some time to come will be low rates of interest and in all likelihood a negative return in real terms, whilst for those considering using some of their savings to invest, you must make sure you fully understand all of the risks involved before proceeding.

 

Click here to compare instant access accounts »

Click here to compare fixed rate bonds »

Click here for more information on the Investec Enhanced Income Plan »

Click here to visit our Income Section »

 

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 investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The Investec Enhanced Income Plan is a structured investment plan which is not capital protected and is 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. There is 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 any shares listed within the Index is not a guide to their future performance. This investment does not include the same security of capital which is afforded to a deposit account.    

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.

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

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.

 

Our 10 best last minute ISA ideas

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With just one week to go until the deadline for using your 2015/16 ISA allowance of £15,240, this really is your last opportunity to make use of this valuable tax break and help protect your returns from the taxman. If you are yet to make use of some or all of your allowance, here we give you our 10 best last minute ISA ideas. Including both Cash ISA and Investment ISAs, as well as opportunities where you can include your 2016/17 ISA allowance (£15,240) as well, there should be something for everyone.

1.   Our best-selling Investment ISA

For those looking for growth but also with the opportunity to mature early or ‘kick out’ each year, the Enhanced Kick Out Plan offers 11.50% for each year invested provided the FTSE 100 Index at the end of each year is higher than its value at the start of the plan (subject to averaging). Capital is at risk if the FTSE falls by more than 50%. This is our best selling Investment ISA during the current ISA season and also features a Double ISA option.  Click here for more information »

2.   Fixed income Investment ISA

The Enhanced Income Plan is a regular ISA season top seller, paying a fixed income of 5.28% per year regardless of what happens to the stock market. The plan also has monthly income payments, so you know exactly how much you will paid, when, and for how long. Capital is at risk if the FTSE 100 Index falls by more than 50%. This plan features a Double ISA option.  Click here for more information »

3.   Self-select Investment ISA top seller

Barclays Stockbrokers has been voted ‘Best Execution-Only Broker’ at the Shares Awards 2015 whilst they have also been voted Self Select ISA Provider of the Year 2016 at the ADVFN International Financial Awards. Their investment ISA offers over 2,000 funds as well as a wide range of other investments including shares, exchange traded funds, investment trust, gilts and bonds.  Click here for more information »

4.   Defensive Investment ISA best seller

The Defensive Growth Plan from Investec offers a fixed return of 36% (equivalent to 5.25% compound annual growth) plus a return of your original capital, provided the FTSE 100 Index has not fallen by 50% or more at the end of the investment term. If it has, no growth will be achieved and your capital will be reduced by 1% for each 1% fall. This plan also features a Double ISA option.  Click here for more information »

5.   Income Investment ISA top seller

The FTSE Quarterly Contingent Income Plan pays a quarterly income of 1.875% for each quarter the FTSE 100 Index does not end less than 25% below its value at the start of the plan. So even if the FTSE falls up to 25% each quarter, you would still achieve 7.50% annual income. Capital is at risk if the FTSE has fallen by more than 40% at the end of the investment term. This plan features a Double ISA option.  Click here for more information »

6.   Managed and regular saver Investment ISA

The Standard Life Stocks & Shares ISA includes their ‘Easy Option ISA’, which allows investors to invest in one of their MyFolio Managed Funds run by a team of experts at Standard Life Investment Ltd. You can manage your account online and your ISA can be opened from just £50 per month with transfers from other ISAs permitted.  Click here for more information »

7.   Defensive supertracker Investment ISA

Defensive plans remain popular and the FTSE Defensive Supertracker from Meteor tracks any growth in the FTSE during the plan term and then trebles it, subject to a maximum growth return of 60%. The plan is defensive since the growth is based on any rise above 80% of the FTSE’s value at the start of the plan – that’s a 60% return even if the FTSE ends the same. Capital is at risk if the FTSE has fallen by more than 40%. This plan also features a Double ISA option.  Click here for more information »

8.   Instant access Cash ISA

For savers looking to combine a top interest rate with access to their money at all times, the Easy Access ISA from AA offers a simple, bonus-free savings rate of 1.25% AER variable. The account can be opened and managed online with just £100 and there are unlimited free withdrawals. The account also accepts transfers in. There are no penalties, notice periods or tiered interest rates, whilst interest is calculated daily and paid in March each year.  Click here for more information »

9.   Fixed rate Cash ISA

If you are looking for the reassurance of a fixed savings rate and don’t need access for your money for at least a year, fixed rate Cash ISAs are a popular option. The 1 Year Fixed Rate Cash ISA from AA currently offers 1.35% AER fixed and can be opened with a single deposit of £500. The account also accepts transfers in. Withdrawals are not permitted and 90 days loss of interest will apply if you access your money during the fixed term. You can apply and manage your account online whilst interest is calculated daily and paid at the end of your 12 month fixed rate period.  Click here for more information »

10.  Help to Buy Cash ISA

First time buyers can benefit from a 25% bonus of their Help to Buy ISA balance with a minimum bonus of £400 (so you need at least £1,600 saved) and a maximum of £3,000 (on a savings balance of £12,000) although you can have more saved. That means for every £200 you save HM Government will add £50, up to a maximum of £3,000. Eligibility criteria and Help to Buy: ISA Scheme Rules apply. Also note that any funds withdrawn before closing the account will not count towards the Government Bonus. The Nationwide Help to Buy: ISA is currently offering 2.00% AER variable with a minimum opening balance of £1.  Click here for more information »

 

Click here to compare Cash ISAs »

Click here to compare Investment ISAs »

Click here to compare our Top 10 Investment ISA plans »

 

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 investment. Fair Investment Company does not offer advice and any investment transacted through us in on a non-advised basis. If you are at all unsure of the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors. The past performance of the FTSE 100 Index is not a guide to its future performance.

Some of the investments mentioned 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. There is 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.

Tax treatment of ISAs depends on your individual circumstances and is based on current law which may be subject to change in the future. ISA transfer charges may apply, please check with your provider.

Savings Focus: RCI Bank’s market leading instant access and fixed rate selections

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RCI Bank is a relative newcomer to the UK, but is currently offering some of the best deals out there. We take a closer look at their story as well as reveal their market leading and award winning instant access account and their top fixed rate bond deals.

RCI Bank

The story behind RCI Bank is a unique one since it originated from the Renault Group, one of the world’s largest car companies. Developed as their own internal bank, RCI Banque was founded in 1974 and was created in order to meet the need to help customers finance their vehicles. Forty years later and the RCI Banque group is still privately owned by the Renault Group and operates in 37 countries across every continent, lending over €12 billion a year. RCI Bank launched in the UK in 2015 in conjunction with RCI Financial Services who combined have over 200 staff and lend over £2 billion each year.

Current selections

Despite only launching earlier this year, RCI Bank already has a compelling range of award-winning products. With a range covering a market leading instant access account and fixed term savings accounts up to two years, the focus is on relatively short term cash, which should appeal to anyone with half an eye on future interest rate rises.

Market leading instant access: offering 1.65% AER

The Freedom Savings Account is currently offering 1.65% AER variable gross, which is market leading for this type of account. This top rate is available to both new and existing customers and is free from notice periods, penalties, bonus periods, tiered rates and fees (although a £15 fee for CHAPS transfers applies). What you see is what you get, which perhaps also explains why it has been given a Moneyfacts rating of Outstanding*.

The account is available as a single or joint account and is free to use so you can make unlimited payments and withdrawals without charge. You have the option of interest being paid monthly or annually which will also compound provided you don’t move it to another account. There’s no limit or fees on the number of withdrawals you can make and it can be opened with a low minimum of just £100. You can apply online and RCI Bank state opening an account takes less than 15 minutes, whilst you also benefit from full UK customer support available 7 days a week

Click here to find out more about the RCI Bank instant access account »

 

RCI Bank short term fixed rate bonds: up to 2.35% AER

For those who are able to tie their money up for a fixed period and are also looking for a competitively priced fixed and regular rate of interest, RCI Bank also offers a duo of fixed rate savings accounts, over one and two years respectively. As you would expect, the rate of interest increases with the fixed term, the 1 year fixed term deposit offering 2.06% AER while the 2 year fixed term deposit is currently paying 2.35% AER. Both accounts have a Moneyfacts rating of Excellent*.

These fixed term deposits offer a guaranteed rate so you’ll know exactly how much you will earn by the end of the fixed term, whilst interest can be paid monthly or annually and can be compounded. Both deposits also give you the flexibility of unlimited top-ups for 30 days from your application however you cannot close your account once opened or make a withdrawal before the end of the term. You can apply online and the account has a low minimum of £1,000.

Click here for more info on the RCI Bank 1 Year Fixed Term Savings Account »

Click here for more info on the RCI Bank 2 Year Fixed Term Savings Account »

 

Deposit Guarantee Scheme

Deposits held with RCI Bank are not covered by the UK Financial Services Compensation Scheme but instead fall within the scope of the French deposit protection scheme, known as the FGDR or Fonds de Garantie Dépôts et de Résolution. Eligible deposits with RCI Bank are protected, and all of the accounts above are covered by the FGDR, protecting the first €100,000 per customer within the RCI Banque group. As with the FSCS, the protection covers each customer rather than each account and for joint customers, each customer is protected up to €100,000 (so up to €200,000 between them). Since the maximum eligible is based in Euros, the UK sterling equivalent at any given time will depend on the exchange rate between the British Pound and the Euro.

Further information – FDGR

Created by law, the FGDR compensates depositors for an amount up to €100,000 per person, per institution, when a banking institution fails. This guarantee benefits all bank customers, private individuals, businesses of any size and associations. For more information and to check their status, visit www.garantiedesdepots.fr/en.

* Moneyfacts awards valid as at 01.10.2015

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