Take a leaf out of our autumn savings guide: Find the right account if you’re a bee (too busy) or a dipper (spender)
Obtaining a good rate of interest on your savings can be as hard as tracking down a red squirrel amongst the dominant greys in Southern England.
So follow The Mail on Sunday’s ‘Autumnwatch’ guide to savings – whether you are a cautious hedgehog or a rate hawk – and discover the best type of account to match your savings behaviour.
BBC’s Autumnwatch will be back on our screens in a fortnight, with its presenters scrutinising the behaviour of the country’s birds and wildlife as the winter approaches.
Save and spend: Cheryl Double from Clacton-on-Sea in Essex is saving hard to move house
In the world of savings, habits are also changing as savers adapt to a financial ecosystem dominated by the long-term shadow of bank base rate stuck at a record low.
Base rate has been 0.5 per cent for more than six years, forcing both banks and savers to adapt. In the past, people tended to run a current account for day-to-day banking; have an instant access savings account as an emergency money pot; and then open one or two fixed term accounts for longer term money goals. But this is no longer the case.
Stephen Womack, of Northampton-based independent financial adviser David Williams IFA, says: ‘The savings dynamic has changed. You now have current accounts paying interest of 3 per cent or more while some notice accounts, which traditionally paid higher rates, are paying less than instant access versions.’
He says savers must adapt their savings habits accordingly. So what type of ‘Autumnwatch saver’ are you?
The beauty of tucking away small amounts every month is that these sums can soon build up – helped by interest (however small) being added to interest. Science genius Einstein is said to have called this compounding of interest the ‘most powerful force in the universe’.
There are accounts paying as much as 6 per cent – but beware, banks don’t want to give away too much and will only pay their best rates on a maximum regular deposit. This is typically no more than £500.
Womack says: ‘First Direct online regular saver account pays 6 per cent on £300 a month for a year. That would generate annual interest of £119 – £238 if a couple each has an account.’
But to qualify, savers must have a First Direct current account and set up a direct debit to the regular saver account.
Saving hard: Moya Wright, who enjoys country walks with husband Tony, is a ‘squirrel’ saver
Retired librarian Moya Wright, who enjoys country walks with husband Tony, 63, is a ‘squirrel’ saver. She puts £250 a month into an M&S savings account earning six per cent a year.
She says: ‘I picked it because of the interest rate as I am trying to make my savings work harder for me in retirement.’ Moya is on track to earn £96 in annual interest.
Among the other top deals for squirrels include Leeds Building Society’s Regular Saver instant access (maximum £250 regular deposit), Dudley Building Society’s 12-month bond (maximum £250 a month) and Scottish Building Society’s 12-month bond (maximum £500 a month).
The fence-sitting robin is not sure whether they will need to draw on their money short term but they still want a good rate of interest.
A suitable nest for this flock of disciplined savers is a ‘limited access’ or ‘defined access’ account. These are for savers who want to park money without locking into a fixed term.
Such accounts usually pay above average interest and permit a limited number of withdrawals a year.
Another attraction is that if bank base rate rises in the coming months, a fence-sitter can pull out their cash without penalty and shift it into an account paying more.
Womack says: ‘This can be a more attractive and flexible proposition than locking into a fixed rate, fixed term savings bond.’
Lesley Mant, from Lowestoft, Suffolk is a fence-sitter and has opted for Virgin Money’s defined access account paying 1.51 per cent.
This allows three withdrawals a year – but exceed this and the rate falls to 0.75 per cent for the rest of the year.
Lesley, 56, who works in accounts for a water company and is due to marry partner Gary, also 56, next year, saves monthly.
Hands on: Lesley Mant is determined to build a healthy savings pot - but also likes the flexibility of being able to dip into her savings from time to time
She says: ‘I am determined to build myself a nice little savings pot but I also want to be able to take money out from time to time to meet any financial emergencies that come my way. Given the flexibility I have, I think 1.51 per cent represents a good rate.’
Lesley also enjoys the extras she gets from the account, which include discounts on Virgin Holidays and access to six Virgin Money lounges around the country.
She says: ‘I’ve been to the Money lounge in Norwich and you get free tea and coffee, chocolates and wifi. There’s even a piano in there.’
Other good limited access accounts include Earl Shilton Building Society which pays 1.4 per cent (over-50s only) and allows a maximum four withdrawals a year.
Instant access accounts offering competitive savings rates include French-owned RCI Bank UK paying 1.65 per cent and Post Office Money paying 1.61 per cent (including a 0.96 per cent bonus for 12 months).
The sleepy dormouse is happy to tie up savings for a while and quietly forget them. Fixed term accounts are their favourite home. Interest rates are currently reasonable and beat most easy access and notice accounts hands down.
Dormice savers usually earmark money for known expenditure some time down the line. They do not plan to touch their savings and want certainty about the returns they will receive. Among the best deals for dormice with £10,000 to invest are two-year fixed rate bonds from Al Rayan Bank, paying 2.42 per cent, and Aldermore Bank and RCI Bank UK, both paying 2.35 per cent.
Total security is crucial for hedgehog savers. They often have high levels of savings but do not necessarily want to spread their cash around several institutions to ensure their money is covered by the savings safety net, the Financial Services Compensation Scheme.
This net is currently set at £85,000 per savings brand – although some institutions apply it across all their brands. It falls to £75,000 in January.
The best accounts for hedgehogs are those offered from National Savings & Investments. This Government-backed savings organisation offers cast iron security, whether a person takes out its savings accounts or Premium Bonds.
The rate hawk expects interest rates to soar in the future – and they do not want to miss out by being tied into a fixed term account. For this type of saver, a tracker bond makes sense where the rate automatically increases if base rate rises.
Charlotte Nelson, of financial product scrutineer Moneyfacts, says: ‘A tracker bond pays a set rate above base rate. So a saver has greater certainty – knowing they will benefit if base rate rises and that the provider can’t simply cut the rate on a whim.’
Best tracker bond deals include those from United Trust Bank which on £10,000 gives either a rate of 1.75 percentage points above base rate for two years or 2.1 percentage points above base rate for three years.
Other tracker bond providers include Halifax, Kent Reliance and National Counties Building Society.
Busy savers who want a good rate of interest but do not have the time to find the best deals can sign up to a service that does the legwork for them. Website Savings Champion provides a free ‘rate tracker’ service that tips customers off about good deals and where to move money to get better rates.
It also provides a fee-based ‘concierge service’ that handles everything to do with building a savings portfolio.
It makes account applications, distributes money across top-paying accounts, ensures all money is covered by the savings safety net and helps customers switch deposits to take advantage of best paying accounts.
This de luxe service is aimed at people with at least £150,000 of savings. A fee of 0.3 per cent applies in year one, reducing to 0.2 per cent thereafter.
There are millions of savers who remain blind as bats – stashing money in accounts paying derisory rates.
Such ‘bat’ savers should open their eyes to better deals as loyalty to one savings organisation rarely pays.
It is easy to switch – especially current accounts, thanks to the Current Account Switching Guarantee that means switches take no more than seven working days.
The best current account and savings deals can be found on comparison websites such as Moneyfacts, comparethemarket and MoneySupermarket.
Among the worst paying accounts are HSBC’s Flexible saver, TSB London and 90 Day – all paying 0.05 per cent a year.
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