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MONEY

Savers told to keep an eye on the base rate as US shifts up a gear

Savers fearful of locking into pitiful interest rates may be enticed by a slew of accounts that guarantee returns from any future rate rises.

The move last week by the Federal Reserve in the US to raise interest rates for the first time since 2006 gave some hope of better returns on the horizon. Typically, the Bank of England has tended to follow US rates quite closely, but when it decides to follow suit remains a matter of speculation.

There is hope of better times ahead despite the dramatic cut to a table-topping 2.8% deal for older savers last week. It emerged that those who had piled into NS&I’s one-year pensioner bonds at the start of 2015 will be shifted to an account paying around half that at 1.45%.

However, tracker savings bonds are guaranteed to move in line with interest rates. This means you don’t know how much you will earn in interest over the term. The uncertainty lies in whether rates will rise before bonds mature.

One of the new breed of challenger banks, United Trust, has the most competitive deal. Its two-year tracker bond pays 2.25%, offering customers the base rate plus 1.75%, compared to 1.47% on the average three-year fix from a high street bank, says Andrew Hagger from Moneycomms. You must pay in at least £500 and cannot access the funds until the account matures. National Counties, meanwhile, is offering a three-year bond paying 2.6% and a two-year bond paying 2%, but the minimum contribution is £5,000.

A customer with £20,000 of savings earning 1.47% would receive £882 before tax over the three-year term. According to Hagger, a saver earning 2.6% would receive £1,560 over the same period – an extra £678 before any rate increases are factored in.

Tom Adams, head of research at website Savings Champion, says: “These bonds form a good part of a balanced savings portfolio, and there are good deals around. It’s an area of the market where providers are trying to compete, with accounts that enable savers to hedge their bets a bit.”

Hagger says: “The last time we saw an increase in base rate was July 2007, and since March 2009 it’s been stuck at 0.5%.

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“During this period savers have borne the brunt of a borrower biased economic strategy, but with the Fed tweaking rates upwards the tide may soon be about to turn on this side of the pond.

“For the first time in almost seven years savers will be seriously considering the impact of potential increases, and tracker savings accounts will come in from the cold and become increasingly popular.”

Source:https://www.theguardian.com

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