Head over to Martin Lewis at Money Saving Expert and you’ll find that today the best easy access savings account comes from West Bromwich Building Society. It pays interest of 2.05% AER but forget to switch after 31 May 2014 to the next bank or building society offering the highest interest rate at that time and you’ll lose 0.55% of that. There are other limitations also which includes only 4 free withdrawals per year and a minimum initial deposit of £10,000 so be sure to read the small print if it looks interesting. If you want something a bit cleaner then you’re looking at Skipton Building Society with 2% AER which includes a bonus 1% which you’ll lose after a year.
It therefore looks as though since we last looked at Savings Rates in February the best buy market has reached a plateau with 2% AER from Derbyshire being the best available at that time.
I must note that I continue to ignore the Santander 123 account for reasons explained in February. If you’re using it and would recommend it over other options it would be great to hear from you.
So best buys are flat but what’s happening on average. Well it’s probably no surprise that interest bearing site deposits are also pretty flat since I last posted at 1.08%. They are also flat since the Funding for Lending Scheme (FLS) was announced. 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 now fallen 0.72% since FLS was announced ending up at 1.57%. 1 to 2 year maturities fall 0.94% to 2.45%. Greater than 2 year maturities have fallen 0.84% since FLS to 2.72% but interestingly are up 0.2% on the month. Could this be the start of a trend? This is all shown in the chart below.
Click to enlarge
This all looks bad for somebody who is trying to save hard but if you’re a worker paying 40% tax then its worse after HMRC has finished with you. After tax you end up with 0.65, 0.94, 1.47 and 1.63% per annum respectively (0.86, 1.26, 1.96 and 2.18% for 20% taxpayers). But wait it gets even worse because inflation is also devaluing your savings at the rate of 3.2% per year. So after inflation and HMRC you’re actually losing savings to the tune of -2.56, -2.27, -1.74 and -1.58% per annum respectively for a 40% taxpayer (-2.35, -1.95, -1.25, -1.03% for 20% taxpayers).
In a normal world a negative or zero interest should indicate that you nearly have a 100% risk free investment as return should be proportional to risk. We are led to believe this with the Financial Services Compensation Scheme (FSCS) apparently covering 100% of the first £85,000 saved per institution. I however now know longer believe this is 100% guaranteed and instead believe that when the proverbial hits the fan it may not be worth the paper it’s written on. What evidence do I have I hear you ask? I’m looking at what transpired in Cyprus. They also had a protection scheme called the Deposit Protection Scheme (DPS) which was supposed to cover up to EUR100,000 per bank. Yet when the banks went bust the original proposal was to take 6.75% of those protected deposits effectively meaning the DPS was worthless. This was eventually changed but the powers that be have in my opinion shown what they are capable of.
Of course as we control our own currency here in the UK, have a national debt not quite as bad as the Cypriots and given the response seen in Cyprus the next time the UK Banks blow up they might also try to add a bit more to the taxpayers tab or maybe do something really innovative and print the bailout. Only time will tell.
Personally I hold some savings as an emergency fund within savings accounts. It’s about 7.5% of net worth with some held in the UK and some offshore. What’s held in the UK is well below the FSCS limit. That’s an appropriate amount of risk for me but it’s yet another thing to watch.
As always DYOR.