Once again, it’s all about the lack of rate rises this week, further to the base rate rise two weeks ago.
Nationwide made a bold move early last week and announced that it was raising the rates on some – but not all – accounts. And barely any of the accounts that are increasing, will go up by 0.25%.
Although, subsequently some of the other big providers such as Lloyds, NatWest, Santander and HSBC have announced their meagre rate increases, so are not exactly bathing themselves in glory either, Nationwide received the full wrath of the press as it was the first out of the blocks. And a number of personal finance journalists are customers! Sally Hamilton from The Mail on Sunday was dismayed to find that her e-Isa will rise by just 0.05% to 0.55%. And Ruth Emery from The Sunday Times announced that she is moving her savings elsewhere.
This disappointing but not unexpected treatment of savers confirms what we have long known – that the relationship between the Bank of England’s base rate and rates for savings accounts has never been less clear. As The Times last Saturday stated “if you are earning less than 1% in interest, you should ditch the account”
Both The Times and The Sunday Times reminded their readers that as the high street banks continually fail to pass on any of the good news to their savers, the smaller challenger banks are waiting to offer you a better return. They point out that the high street banks continue to be disrupted by newcomers which keep on coming. Once such bank on the horizon is Marcus – a division of the investment bank, Goldman Sachs. It’ll be interesting to see what they have to offer when they launch. Of course, we’ll let you know.
Geoff Ho from the Sunday Express make an interesting suggestion. He asked when savers will be compensated by the banks for being paid such pitiful low rates. I wouldn’t hold my breath on that one, just as, as we reported a couple a weeks ago, we’re also not particularly excited about the possibility of banks having to state a minimum savings rate.
In other news, Marc Sidwell in The Daily Telegraph mused about how contributing into a pension for a child or grandchild could be a huge boost to their financial future – and that the contributions could even be exempt from inheritance tax because the maximum contribution for a child’s pension is £2,880 a year – below the annual gift allowance.
Of course, this would also be topped up to £3,600 with tax relief – so by the time your child or grandchild reaches age 18, you may already have saved £51,840 for them, topped up by a further £12,960 in tax relief. Assuming 4% annual growth the pot could be worth £100,000 by the time they are 18 and even with no further contributions could be worth £480,000 by age 58. That’s a good start.
On the flip side, if they now know they are off to University after celebrating A-level results, their excitement might be dimmed slightly by the idea that the average student debt will be big – they could easily owe £60,000 when they graduate. However, in an article in The Observer, Hargreaves Lansdown calculates that a graduate would have to be on a starting salary of £56,000 a year if they were going to pay off the whole loan. So, the reality is that many students will never have to pay it off. The Institute of Fiscal Studies suggests that 83% of graduates will never pay back their student loan in full, with the slate wiped clean after 30 years.
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