Anna Bowes, Director of savingschampion.co.uk says: “The floodgates are opening and the concern is that it will soon become acceptable to trim rates on any variable rate accounts that are deemed too expensive to run. Although providers have the flexibility to change variable rates at any time, it’s generally been frowned upon unless those changes follow a move in the Bank of England base rate – but that’s not happened for almost four years!”
Competition for new savings money has dried up. The previous race for savers’ cash has left many providers with closed accounts that pay over 3% - a very expensive legacy.
“The end to savers’ pain is not yet in sight so savers need to do everything they can to protect themselves. They must use all their tax allowances and stay aware so that they can switch if there are better rates available,” says Anna.
This relentless drop in interest rates means that there are now only two standard savings accounts currently available to new savers that beat or even match inflation after the deduction of tax. Worse still, now only 17 ISAs beat inflation; a massive drop from 138 back in October.
* Providers who have cut rates or announced planned changes for existing customers include Bank of Scotland, Julian Hodge Bank, Manchester Building Society, Melton Mowbray Building Society, Skipton Building Society, West Brom Building Society, M&S, Intelligent Finance, Saffron Building Society, Allied Irish Bank and even Halifax - all have cut or announced cuts to some of their existing savings accounts.
Call us on 0800 321 3581 if you want information about accounts and rates that have been cut for existing customers.
THE STATS BANK
Bank of England Base Rate: 0.50%
Inflation figures: CPI - 2.70%, RPI - 3.20%
Rate needed to beat CPI inflation = Basic rate tax – 3.38% / Higher rate tax – 4.50%
Number of accounts that match or beat inflation for a basic rate taxpayer =
• Easy Access – 0
• Notice Accounts – 0
• Cash ISAs – 23
• Fixed rate bonds – 12-18 months = 0, 3 year = 1, 5 year = 1
PRODUCT OF THE WEEK
Type: Variable Rate ISA
Coventry BS – 60 Day Notice ISA (2)
Interest rate – 3.10%
Bonus – 0.60% bonus for first 12 months.
Minimum – £1
I know we’ve already featured the old issue of this ISA, but the rate for the new issue was dropped by just 0.15%. Its current rate of 3.10% is head and shoulders above any other cash ISAs available, even longer term fixed rate ISAs, and one the few accounts that should produce a return that beats inflation. But it is a notice account, so if you need access it makes sense to give the notice, otherwise you’ll suffer a penalty equivalent to the 60 days loss of interest on the amount withdrawn.
Unfortunately you can’t transfer previous ISAs into this accounts – it’s for new money only.
(summary of Rate Alerts over the last week)
Tesco Bank has withdrawn its best buy 2.40% Internet Saver and launched a new version at a lower, less competitive rate of 2% gross/AER.
Julian Hodge Bank has replaced its rates for new customers on its fixed rate Capital Millennium Bonds and Fixed Rate Cash ISAs and the rates have reduced by up to 0.50%. The rates are now 2.10% gross/AER for 1, 2 & 3 years and 2.15% gross/AER for 4 & 5 years. Bonds can be opened with £1,000 and Fixed Rate ISAs with £5,640, by post.
Triodos has withdrawn its Two, Three and Five Year Ethical Savings Bonds and replaced them with new bonds with reduced rates for new customers. The bonds have reduced by up to 0.30% and are now paying 2.50% for two years, 2.75% for three years and 2.95% for five years.
Marks and Spencer has reduced the rate on its variable Advantage Cash ISA from 3% to 2.75% tax free/AER with effect from 11th December 2012. The reduction will affect both new customers and existing customers who already hold the account. M&S has also announced that the rate will be cut again from 6th March 2013, to 2.25%
Marks and Spencer has withdrawn its Fixed Rate ISAs and replaced them with new Issues with reduced rates for new customers. The Fixed Rate ISAs have reduced from 2.80% to 2.35% tax.
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Susan Hannums: 0800 3213581 / 07887 998 984 firstname.lastname@example.org