Some interesting times are ahead for savers as the Bank of England gets set to ratchet up rates.
Bank governor Mark Carney has hinted that he expects interest rates to settle between 2% and 3% by 2017.
The likelihood is rates will not move until after next year’s General Election.
However future expectations do not help current savers with cash washing around in accounts barely paying enough interest to beat inflation.
The Bank decided to leave interest rates pegged at 0.5% this month – which is where they have been beached since March 2009.
Rates needed to beat inflation
Current rates have become a little more attractive as inflation dropped back 0.1% in March to 1.6%, the lowest rate for around 48 months.
That means savings accounts must deliver a return on investment of more than 1.92% to outperform inflation and tax for basic rate taxpayers (20%); 2.24% for higher rate (40%) taxpayers or 2.32% for top rate (45%) taxpayers
“The time will come to raise interest rates,” said Carney. “But the Bank will make sure this is gradual to limit any damage that businesses and individuals may face to their finances.”
For expats and savers taking their money offshore, savings rates are pretty pathetic.
The best is Skipton International’s international reserve bond offering 2.75% fixed interest until March 31, 2019 for a minimum deposit of £10,000.
The big call for savers is whether to take a short term deal over 12 months to wait and see what happens to rates or to take a fixed rate deal that might well be eclipsed by higher savings rates half way through the term.
The best 12 month fixed rate deal comes from Ireland’s Permanent Bank. Paying just 1.75% interest on £20,000, the rate holds little incentive for any UK taxpayer or expat.
Most of the best offshore savings deals, however meagre the returns, are with fixed rates.
Easy access accounts are available, with The Nationwide offering a miserable 1.75% on £25,000, including a stepped bonus for leaving the money alone. Anyone tempted by this offer should read the bonus small print carefully to make sure they do not lose out.
Skipton has the best interest rate on offshore notice accounts – again 1.75% with 180 days’ notice or six months before a saver can get their hands on their cash. The minimum investment is £10,000.