July magazine column
James writes a monthly savings column for Essex based magazines, Beaulieu and Channels. This is a reproduction of his July column.
Last month I wrote about the steep falls in interest rates we have seen on savings during the Covid-19 lockdown period. Although rates are continuing to fall, the number of cuts is reducing. This is because the government’s savings provider, National Savings & Investments (NS&I), is providing some support to the market with its Income Bonds paying 1.16%, Direct Saver at 1% and easy access ISA offering 0.90%.
I did wonder whether the recent mini-budget might see an announcement of a cut to NS&I’s rates, given their best buy status, but thankfully it didn’t. Given they have to give two months’ notice of changes to rates, this means we are some time off seeing a rate cut at NS&I.
We are now seeing some new product launches – Allica Bank have come back to the market with some very excellent notice, 1 and 2 Year Fixed Rates and Close Brothers similarly have launched competitive 2 and 3 Year rates. We also (very briefly) saw Wesleyan Bank launch a best buy 5 Year fixed and well-priced 18 month bond.
My advice to savers is to grab these rates as soon as you can because, in volatile markets like these, they are unlikely to last. Providers will move in and out of the market quickly so secure them while you can. Remember, many allow a 14 day funding window, so you don’t need to have access to the money you want to save in those accounts there and then.
New banks close to launch
I expect to see some new entrants come into the savings market soon. Zopa have launched a range of fixed rate savings to their existing investors but expect those to be offered more widely – possibly later this month. The newest bank, Castle Trust, have also indicated they will enter the savings market later in July.
JN Bank, Oxbury and Vive Bank all received their banking licences earlier in the year so expect to see them come to the market too – probably in the autumn.
Every new entrant to the savings market has paid attractive rates initially to get a foothold so look out for these new players to see if they launch with some good offers to entice new savers. As they are new, all are likely to only be able to accept a limited amount of savings though so don’t expect good deals to last long!
Why savers should consider notice accounts
When interest rates are falling quickly, notice accounts can be a really good option for savers. The reason for this is because the bank providing them needs to provider savers with at least the equivalent notice period before changing rates. For example, if a bank has a 95 day notice account, if it wants to change the rate on this, it needs to give its savers at least 95 days’ notice of the change, before the rate can be reduced.
Not all banks are good at keeping on top of what is known as their ‘back book’ so often such changes are not implemented particularly quickly, or not at all, meaning that savers benefit. An example of this is BLME who are still paying 1.71% on their first 90 day notice account and 1.51% on their second one. Their current version paying 1.10% is still joint top of market and, based on past performance, doesn’t look like it will get changed quickly if rates fall.
ICICI Bank are currently paying 1.40% on their 95 day notice account. Although they have already announced a cut to 1.10% with effect from 1st September, new savers will still get the higher rate until then and 1.10% is still joint top of market.
New bank Allica is also paying 1.10% and could also be worth a look for similar reasons. While these accounts aren’t immune from falling rates, they are often forgotten and, even if they are cut, the delay involved in reducing the interest rate softens the blow somewhat for savers.
Children’s savings accounts still paying great rates
One area which has seen limited impact from rate cuts is children’s accounts. There are still some fantastic rates to be found if you are saving for your children. Halifax lead the way with a 4% paying regular savings account which as little as £10 per month can be put away in to, up to £100 per month.
Saffron Building Society has long been a great home for children’s savings, and their current regular saver pays 3.02% with a £5 per month minimum saving level and £100 maximum.
NS&I (3.25%) and Coventry (2.95%) lead the way on Junior ISAs, with NS&I only available online whereas Coventry is a branch, post and telephone based account. Both accounts can be opened with just £1 and can be added to as and when.