With the Bank of England base rates now at historic lows we are finding that the major banks just do not want to hold instant access monies and their rates of interest are plummeting.
As examples, many popular savings accounts are all falling this autumn
Barclays Everyday Saver drops to 0.05%
HSBCs Flexible Saver already sits at 0.05%
NatWest Instant Saver falls to 0.01%
For those who need income from savings (and for those who are looking for capital appreciation) the returns from both access accounts and term deposits are getting ever lower and it has never been more important to shop around for anything decent in the way of returns from deposits. Whilst we all hope that they will not go any lower, with base rates now at 0.25% they do still have scope to fall further.
Fixed term deposits do not fare much better with the vast majority of two year fixed rates lower than 1.5% at best and the very best five year fixed rates paying a very maximum of 2.0%. Historically many term deposits were accessible early with a penalty payment, but now most are not accessible at all until maturity so if you are locking in for the long term, do make sure that you can live without the capital until then.
The security of deposits is the key factor why large sums are retained in cash but, as we can see above, they often no longer form a realistic source of income. As well as struggling to maintain the value against inflation, the likelihood of eroding capital to live with interest rates as they are now is so much greater. There are a number of other investments strategies that may be better suited to long term income production than deposits at the moment, some of which can also offer the opportunity for rising capital values over time.
Simon Foreman is an Investment Adviser with Independent Financial Advisers, Chilvester Financial. He specialises in later life matters including advising on income strategies in retirement and can be contacted through their Marlborough office on 01672 500600. All interest rates quoted above are gross per annum.