Finance: Expert on impact of inflation on savings accounts
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Positive news for savers is usually hard to come by, particularly in the last 18 months, which have seen plummeting interest rates. The Bank of England’s decision to slash its base rate to 0.1 percent – a figure which has not changed since, despite multiple reviews – has had a knock-on effect on more familiar providers with interest rates lowering also. However, there is a shred of hope according to the most recent analysis of savings accounts.
Moneyfacts, consumer comparison site, has said savers may be pleased to find competition has flourished among notice accounts which are now offering the best returns on average since the start of 2021.
The average notice account has risen to its highest point during 2021, now at 0.54 percent, up from 0.37 percent six months ago.
The top notice account rate of 1.10 percent today pays more than double one of the top six best rates available in April 2021 of 0.52 percent.
It is challenger banks, however, which are offering the best notice account rates, meaning Britons may have to step outside their comfort zone to secure the best deals.
However, many of these accounts are Financial Services Compensation Scheme (FSCS) accredited, meaning eligible deposits up to £85,000 are protected should the worst happen.
Rachel Springall, Finance Expert at Moneyfacts, offered further insight into notice accounts, which she pegged as one of the most suitable options for savers at present.
She said: “Notice accounts are flourishing as savings providers have significantly improved rates and expanded choice. There are now more notice account options available, the highest count since December 2020.
“Savers looking for a decent return on their cash may have noticed a rise in short-term fixed bond rates recently, but a notice account may be a more suitable alternative for those who are not comfortable with locking their cash away for too long.
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“Six months ago, the average notice account rate was 0.37 percent and in May 2021 it fell to a record low of 0.36 percent, but this has since risen to 0.54 percent thanks to significant improvement in competition.
“In April 2021 the top notice account paid 0.65 percent and in fact one of the top six deals paid 0.52 percent, so today’s market-leading rate of 1.10 percent pays more than double the amount of interest.
“Unlike fixed bonds, notice accounts pay a variable rate, but the ability to give notice to access funds may be more favourable to some savers and the maximum notice term today is about four months.”
However, there are notable differences to consider if a person is enticed by the improving interest rates of notice accounts.
Many are more used to the idea of being able to access their money as and when they so choose, and therefore, it could be a marked adjustment to change one’s expectations of when cash will be available.
For some, the length of the notice period will be important, and thus the wide range of notice accounts is likely to work in their favour to help them choose a time period to suit them.
Others will focus less on this, and more on the interest rate they can actually achieve. In this sense, locking away money for a longer period of time could potentially be more advantageous.
This does not necessarily have to be the case, though, as Recognise Bank’s 95 Day account currently has a gross rate at £10,000 of 1.10 percent, while 120 day accounts offered by Oxbury Bank, OakNorth Bank, DF Capital and Charter Savings Bank have a slightly lower interest rate.
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Despite this, all of these banks lead the pack in terms of the top notice accounts this month.
Ms Springall stressed those who are comparing different savings accounts should note that most notice accounts will allow them to deposit funds into their account little and often.
This is unlike the process with fixed bonds, which will typically only allow an upfront lump sum at the point of application.
But the expert stressed that while these attractive rates could entice Britons at present, they may not be around for long.
She concluded: “There are many notice accounts that pay better variable rates than easy access accounts too if savers are happy to give notice to access their cash.
“But as the market continues to improve, it would be wise for consumers to keep a close eye on the top rate tables and be quick to apply so that they are not left disappointed.”
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