Savings rates are continuing to rise, with best-buy deals offering 5%-plus, so if your money is earning a pittance, now is the time to switch to a better-paying account.
Research issued this week found that while there are a growing number of fairly decent deals emerging, almost £270bn is languishing in accounts paying no interest at all. It also found that fewer than a third of people have switched accounts in the past 12 months, while about half have not switched for five years or longer or have never switched.
Most consumers will be pleased that savings rates are continuing to improve, particularly amid the uncertainty surrounding the stock market, says Rachel Springall at the data firm Moneyfacts. The FTSE 100 index was down almost 8% on a year-to-date basis on Thursday.
Fixed interest rate-paying accounts provide a clear, guaranteed return for savers during these unprecedented times, and the top-paying fixed-rate bonds “are reaching heights not seen for many years”, fuelled in part by challenger banks competing to bring in cash, she adds. For example, at the time of writing you could earn 5.05% and 4.95% respectively with five-year fixed-rate bonds offered by Close Brothers Savings and Tesco Bank.
The good news is that variable rates on easy access accounts and cash Isas have improved
However, with savings rates set to continue rising – the Bank of England is expected to increase the base rate by perhaps 0.75 percentage points on 3 November – this arguably isn’t the best time to tie up your cash in a longer-term fixed-rate bond.
Shorter-term savings bonds, such as those lasting for a year, may be a better bet. Top-paying one-year bonds at the time of writing included a Kent Reliance deal paying 4.45%.
That said, with the cost of living crisis raging, many savers will be keen to keep their cash close to hand, where they can get at it easily. The good news is that variable rates on easy access accounts and cash Isas have improved. Skipton building society has the Double Access Saver paying 2.55%, while Ford Money has the Flexible Saver paying 2.5%.
Banks and building societies often don’t pass on the full amount of a base rate rise; they may opt to pass on just some of it, or none of it, and sometimes customers have to wait weeks or even months for them to act.
However, some providers have been doing the decent thing.
At HSBC, some chunky savings rate rises took effect this week, with the bank saying that this was the fifth rate increase announcement this year.
View image in fullscreenResearch found that fewer than a third of people have switched accounts in the past 12 months. Photograph: Tek Image/Getty Images/Science Photo Library RF
Investec has just upped the rate on its competitive Fixed Rate Saver account from 4.15% to 4.36% (it went up from 3.9% to 4.15% on 4 October). This account has a one-year term and the minimum balance is £5,000, so it certainly won’t be for everyone. Also, you won’t be able to make any withdrawals until the year is up.
Nationwide this week announced fresh rate increases for all its off-sale variable-rate savings accounts, taking effect on 1 November. Some rates will increase by up to 1.2 percentage points. So, for previous issues of its Triple Access Online Isa (11-13) and Triple Access Online Saver (12-14) there will be rate increases of between 0.6 and 1.2 percentage points, meaning they will now pay 2% (Isa) and 2.1% (Saver).
Other accounts won’t get as much as that. For example, for all instant access accounts, including Instant Access Saver, Instant Isa Saver and Cashbuilder, there will be rate rises of between 0.05 and 0.15 percentage points to either 0.3%, 0.4% or 0.5%, depending on the amount saved.
The research on switching was commissioned by the investment firm Hargreaves Lansdown. It found that the most common reason people gave for not moving their money was that rates were too low to bother with, followed by people trusting their bank so not wanting to leave, and thinking that switching was just too much hassle. While the first of those reasons may have been true until a little while ago, it is arguably not true now.