Mr & Mrs K Ask:
We switched saving accounts 18 months ago to get a better interest rate and managed to get slightly over 3%pa. It has now dropped to 0.50% pa because it included a bonus for 12 months which has now finished. We can switch to another account but find it annoying that we have to work so hard to get our money to do the same. Investing is not an option but we are prepared to tie it up for a year. Could you offer any suggestions?
Peter Sharratt Answers:
If you shop around you should be able to secure an interest rate in the region of 3%pa but this is likely to include a bonus for a limited period. Once the bonus expires you will have to shop around again. The whole process of searching for a new account, closing the old and opening the new can be frustrating and time consuming. As a result it is very easy for apathy to set in and you end up accepting the low rate which ultimately is what the Bank or Building Society hope will happen.
You could consider Premium Bonds and the maximum you can have is £30,000 each. You will be entered in to a monthly prize draw and could win anything from nothing to £1 Million. The smallest win is £25 and in reality you would hope for a few of these. Winnings are Tax Free and you have easy access to the capital. Possibly a good alternative if you are going to take the apathy route and stick with the current account paying 0.50%pa. Investec Bank offer 2 accounts which I think are an attractive alternative. There is the High 5 Issue 2 Account or the new the new High 10 Account. Both Accounts have a Minimum Deposit requirement of £25,000 and a Maximum of £100,000. The Interest you receive is the average of the Top Savings Rates as published in the best buy tables on the Moneyfacts website. For the High 5 they base it on the Top 5 Accounts and for the High 10 they base it on the Top 10. The interest rate is updated on a weekly basis.
This process means that you are consistently getting a good (not the best) Interest Rate without the need to regularly shop around. At the time of writing, the High 5 was paying 3.21%pa gross and the High 10 was 3.15%pa gross. Both accounts have a notice period; 6 months for the High 5 and 3 months for the High 10. Neither offers access prior to then. No more shopping around!
If you would like more advice regarding this issue or any other financial services matter, please contact us.
If you would like to receive Kirk Rice’s Financial Services Questions regularly by email, simply email email@example.com stating Financial Services Questions in the subject heading and we will add you to our distribution list.
Please note: answers are given for general guidance only and specific advice should be taken before acting on any of the suggestions made.