The 6% saving war
On 19th June Chris Gilchrist wrote an article for Everyinvestor.co.uk. According to the article more banks are pushing up savings rates to well above the Bank of England’s 5.5% base rate. It’s now easy to collect a no-string 6% on your money. Although the Bank of England have not raised interest rates in June its boss has given speeches in which he’s made it clear there are further interest rate rises in the pipeline. Many of the banks have taken the hint are now offering 6% on instant-access accounts. At the moment the best genuine no-strings accounts are from Sainsbury’s Bank (6% from £1), Icesave (5.95% from £250), ICICI Bank (6.05% from £1), and Northern Rock Online Silver Savings (6% from £1, 50+ only).
However there are two good ‘with-strings’ accounts where you need to watch out to avoid withdrawal penalties. HSBC Online Saver pays 6% but you get no interest for any month in which you make a withdrawal. Birmingham Midshires Websaver pays 5.95% but you may make only six withdrawals from the account in a 12-month period.
There are some accounts which include bonuses with a limited life. Birmingham Midshires’ rate includes a 0.75% bonus for the first year and at Citibank (6% from £1) the rate will drop to 5.5% after six months. Another newcomer at over 6% is Coventry Building Society. Its Sixty Plus eSave account pays 6.2% from £1 (only to those aged over 60, though). The rate is fixed until April 2008.
Previously, banks had resisted raising ISA rates but several have now breached the 6% barrier, including National Savings & Investments and Egg, both paying 6.05%. Portman pays 6.3% but includes a 6-month bonus so the AER (the annualised rate) is 5.9%.
It is expected that the Bank of England base rate will raise to 5.75% in the next couple of months and most people in the City expects it to be 6% by Christmas. That means banks have little to lose by rising rates before the next base rate rise - it’s not that expensive a way of attracting new customers.