November magazine column
24/11/2020
Rates continue to fall
Last month I wrote about the savage interest rate cuts announced by National Savings & Investments (NS&I) and urged all savers impacted, other than Premium Bond holders, to move their money to better paying accounts.
Many have taken this advice and the deluge of savers moving out of NS&I has seen rates fall as they flood to the best paying accounts. Almost 1% was available on easy access accounts then whereas now the best rate is 0.70% (from Al-Rayan Bank) with most providers offering around 0.50 – 0.55%.
Only Al Rayan Bank (1.09%) pay more than 1% for 1 Year Fixed and only four banks are paying above 0.85% - compared to a top rate of 1.31% which was available before NS&I announced their cuts.
Savers may be wondering if it is too late to move if they haven’t done so already. The answer simply is no! Here’s the accounts which I’d suggest looking at – both for those looking to move out of NS&I and for anyone with savings to put away:
Easy Access: Al Rayan Bank or Paragon
Al Rayan offer the best paying easy access rate of 0.70%. Paragon pay a slightly lower 0.65% which falls to 0.25% if more than three withdrawals are made per year.
Notice: UBL Bank
UBL pay a very competitive 1% on their 35 Day Notice Account and, best of all, it can be opened with just £1. The account can be opened by (free)post and then managed via internet banking, post or telephone. They have to give you two months’ notice if they change the rate so plenty of time to find an alternative if that were to happen.
The rate on this account beats almost all 1 and 2 Year Fixed rates so is well worth considering opening with the minimum £1 just to secure the rate – I can’t see it being beaten in the near future.
Regular Savings: firstdirect, HSBC or Coventry Building Society
If you are a current account customer of firstdirect or HSBC, this may be your last chance to take advantage of their 2.75% regular savings account for existing customers. HSBC also runs M&S Bank who have just withdrawn their regular savings account and I think it won’t be long before firstdirect and HSBC follow suit and withdraw or cut the rate. 2.75% is almost double the best paying 5 Year Fixed Rate!
For those who aren’t customers of either, Coventry Building Society pay 1.55% on their regular saver which is available online and is open to everyone. You can save as little as £1 up to £500 per month.
Premium Bonds
Although the rate on Premium Bonds falls to 1% from the December draw, this still beats, by a long way, the best easy access rates. If you take the view there’s little interest to be lost and like the excitement of having a chance of winning bigger amounts, Premium Bonds are worth considering. There’s over £97bn saved in them so there’s long odds on winning one of the two £1m prizes but almost 4 million £25 prizes were paid out in November’s draw
Children’s Savings: Halifax or Saffron Building Society
With Christmas round the corner, many family members will be wondering what to buy children/grandchildren and some will be contemplating cash. Children’s savings accounts pay the best rates on the market with Halifax paying 4% on monthly contributions of £10 - £100 and Saffron Building Society a generous 3% on monthly sums of £5 - £100. This could be an ideal alternative to simply handing over cash.
Will interest rates rise for savers in 2021?
Predicting interest rate movements is always hard – particularly when looking too far ahead. Rates fell hard in the month after the announcement from NS&I of the cuts to their range. After a stable couple of weeks at the end of October and start of November, we’ve seen further falls in the market in recent weeks. I think this has been caused by two types of reactions from NS&I savers. The first have moved the money straight away. The second group have held on to get the most they can before the cuts and are now switching just as the interest rate cuts take effect.
I think we are likely to see further falls during late November and early December before things quieten down over Christmas. What savers need for rates to rise in 2021 is some price competition amongst the banks and what often drives this is new entrants. We should see Oxbury and Vive Banks launch shortly and Monument and Recognise have just received their banking licences so should come to market next year. I think there will be more new banking licences granted in December too. All this new competition should help savers – but I can’t see rates increasing significantly from where we currently are.