How to find the best rate on your savings

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How to find the best rate on your savings
Personal Finance and Savings
You can’t please all of the people all of the time. Mortgage borrowers maybe happy with the recent 0.25 per cent cut in the base rate, but savers with First Direct, Bradford & Bingley, Universal Building Society and ING have all had the rates paid on their savings cut over the last few weeks. If you’re looking for a home for your savings, then read on. We tell you how to find the best home for your cash in a climate of falling interest rates.

Finding the right account

It used to be that higher rates were always paid on accounts that required you to tie your money up and give notice before you could gain access, but this is no longer always the case. High rates are often found on internet and postal instant access accounts. And many of these accounts will allow instant access by issuing debit cards. Yorkshire Building Society, for example, issues a cash card with its Internet Saver account, which pays 5 per cent on balances of £1 upwards.

High street banks and building societies often offer the lowest rates for their branch-based accounts, so although it may be convenient to have all your business with one institution, it may not be the best way of getting value for money. NatWest, for example, pays just 1.45 on its Reserve, instant access account. And Nationwide pays just 1.55 on its Cashbuilder account. Both pay higher rates on internet accounts.

Many accounts now come with various rate guarantees and bonuses and many of the current best buys appear in the best buy tables because their rates include a bonus. Abbey’s e-saver, for example, pays 5.10 per cent on £1 plus, but this rate includes a 0.50 per cent bonus for the first six months. So if you go for an account paying a bonus, make sure the rate it pays once the bonus is taken away is still reasonable.

Notice accounts and fixed rates are also available. Kent Reliance and the Post Office both offer a one-year bond paying 5.06 per cent AER and 5.00 per cent AER respectively. If you want to get a higher rate than this, you’ll have to tie your money up for longer. MBNA has a five-year fixed rate bond paying 5.10 AER, with a minimum deposit of £2,500. This will mean that you will miss out on any future interest rate increases.

Rachel Thrussell, head of savings at Moneyfacts.co.uk says: “There are better rates available, as long as customers are happy to lose access to their funds either via a notice period for access or a fixed-term deposit. If they move to one of the options and subsequently need access to their cash, then the interest penalty will wipe out any benefit they would have made on the interest margin. More...

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