Low savings rates across the board
State-backed NS&I have been best buys for savings for months as the Government, desperate to bring in cash, tasked it with raising £35bn this tax year, up from the normal £6bn.
However, this has come to an end with NS&I announcing massive rate cuts. From November 24th the Direct Saver will be cut from 1% to 0.15%, Income bonds from 1.15% to 0.01% and the Premium Bond prize fund from 1.4% to 1%.
Chief Executive Ian Ackerely justified the cuts with ‘It is time for NS&I to return to a normal competitive position for our products’.
What of inflation rates?
Last week The Bank of England voted to hold the base rate at 0.1%, but said it was looking at the possibility of cutting it to below zero. Although the best buys out there are still offering up to 1.2% for instance access savings accounts, you have to question how long these rates will last.
Demand is likely to skyrocket as savers switch out of NS&I accounts in their droves, looking for a better deal, which may result in lenders closing access to these accounts – or also dropping interest rates.
In reality, any savings rates below the rate of inflation put you in negative growth territory.
What’s the alternative?
One way to protect yourself against reductions in rates and having to move from one provider to another is to invest your cash in a fixed rate savings account. Currently, you can get 1.1% for a 1-year fixed with Tandem and 1.36% for a 2-year fixed with Aldermore.
Both Tandem and Aldermore offer the maximum Financial Services Compensation Scheme (FSCS) Protection of £85,000. When looking for the best savings accounts it is always worth making sure they are part of the FSCS Compensation Scheme. It’s also worth noting that the cover is per institution, so where banks are part of the same group you may not get the separate £85,000 cover per bank.