Money Saving Expert now tells us that if you are in the market for an easy access savings account you can get an interest rate of 2% AER with Derbyshire. Forget to switch after 31 March 2014 to the next bank or building society offering the highest interest rate at that time and that becomes 0.5%. Last month you could get 2.35% on accounts offering a bonus for a fixed period of time and back in June 2012 you could get 3.2% AER variable with Santander reducing to 0.5% after 12 months. So in less than 12 months the best rates being paid have fallen by more than a third.
Choose to go for a no nonsense easy access savings account (always my preferred option) that available interest rate is also 2% today from Virgin. Last month the best buy was 2.3% AER with West Bromwich Building Society. Back in June 2012 the best rate was 2.75% AER variable with Aldermore.
I must note that I’ve left the Santander 123 current account out of the analysis even though it’s currently paying 3% AER. I have no time for this sort of account. To me it’s made deliberately complicated and I don’t believe the average punter would have a hope of calculating whether this account is the best for them. It pays the 3% only on balances between £3,000 and £20,000, requires a minimum deposit of £500 per month, takes a £2 per month fee (remember you’ll pay tax on the 3% but won’t be able to claim against the £2) plus in the circles I move I hear of the poor customer service that Santander offers. I can’t help but feel somewhere in the small print I’m bound to lose out against a simple no nonsense account. If somebody is having success with this account please do comment below as I’m sure many readers (I know I certainly would) would like to know if you are seeing success.
Of course we must also consider that the easy access savings accounts detailed above are the best accounts out there. My chart today shows what is happening to the average account. For those that are interested last month’s analysis is here.
Click to enlarge
Since the FLS was introduced in August 2012 interest bearing site sight deposits from households (the red line) have risen a small 0.03% to 1.07%. The interest on fixed maturity savings accounts is however a very different story. Time deposits with a maturity of less than or equal to 1 year have fallen 0.66% ending up at 1.63%. 1 to 2 year maturities fall 0.78% to 2.61% and greater than 2 year maturities have fallen 0.98% to 2.58%.
So what is the Retirement Investing Today portfolio doing about low risk savings/investments? I too have been hit this month and to be honest it came as no surprise with me mentioning the risk last month. I was using Yorkshire Building Society for my Emergency Fund (now only 4.5% of my total assets) which was earning 2.1% until this arrived:
Important information - changes to savings interest rates
You'll know that as your building society, we're committed to offering you genuine value across our range of savings accounts.
Over the last few months, we've seen unusual conditions in the savings market, with many other banks and building societies reducing their savings rates. On average, Best Buy fixed and variable rate accounts have dropped by 0.80% (based on Moneyfacts Best Buy Tables showing the reduction in the highest rates available between 01/08/12 and 01/01/13).
After much thought and careful consideration, we've now made the difficult decision to adjust our own savings rates in line with the rest of the market.
On 4 March 2013, we'll be reducing the rates on some of our existing variable rate savings accounts, which includes your online account(s)...
I actually found the tone of the letter an insult to my intelligence but I guess the letter wasn’t written for people who read Retirement Investing Today. Words like “committed to offering you genuine value”, “many other banks and building societies reducing their savings rates” and “difficult decision” to me sound like nothing more than blaming somebody else and lies. If only they were transparent and honest with something like - over the past few months the market rate needed to be paid on interest to attract and retain savers has reduced and thus we will also be reducing the interest rate we offer. At the end of the day though none of it matters as my 2.1% AER will now reduce to 1.65% AER. I therefore need to start looking for a new account however I’m going to wait a few weeks to see if these falls stabilise across providers. The last thing I’d want to do is find a new bank, go through the hassle of moving my Emergency Fund only to find it too reduced its rate to 1.65% or worse.
Instead of savings accounts I continue to hold the majority of my low risk investments as follows:
- NS&I Index Linked Savings Certificates. I’m a big fan of these however unfortunately they are currently not on sale. While they were on sale I backed the truck up and so now hold about 16.7% of my total portfolio in them.
- I hold some cash in offshore accounts currently earning 3.25% (down from 4% in June 2012).
- Finally, I hold Index Linked Gilts both in ISA and SIPP wrappers.
As always DYOR.