The media has been increasingly reporting on the possibility of a no-deal Brexit, although the recent so-called breakthrough, means that we may now exit with some deal. However, there is still a lot of uncertainty – and we are still effectively none the wiser. With that in mind, you may wish to try and Brexit-proof some of your savings.
There are so many variables regardless of the outcome – and even with the suggested possibility of at least some deal, we still don’t know what effect it will have. But it’s likely that we could see the pound fall, stock market become more volatile and interest rates could be cut. So, savers could be back to where they were before the base rate rise, or even worse.
So, what can you do with your cash savings?
One of the simplest things to consider with at least some of your cash, for those who fear that the base rate could be cut if we were to exit Europe with no deal, could be to put at least some of their cash into a fixed rate bond for a couple to years, until the dust settles.
At the moment, 80% of all cash held in savings accounts is on easy access and we know that the high street banks hold the majority of this. Yet, following the base rate rise these providers have failed to pass on the full rise – in fact, Lloyds Bank has not increased the rate on its Easy Saver account at all. The others aren’t much better, increasing the rates on key easy access accounts by no more than 0.10%. The high street banks are paying some of the worst rates in the savings market, yet savers leave their money there, earning a pittance.
The good news is that savers have more options than to leave their money with their high street bank. The lesser-known challenger banks are still competing for savers cash, which is driving rates in the right direction. Best buy fixed rate bonds are at a two and a half year high at the moment, so there are some competitive rates available – which means that rather than languishing in an easy access account waiting to see what will happen next, savers could be earning higher rates of interest immediately and rest assured that whatever happens, they can be certain about the return on some of their money.
The best two year fixed rate bond is currently paying 2.26% (with Secure Trust Bank). On a balance of £50,000 that would provide a guaranteed return of £1,130 gross per year. If you were to leave your cash with your high street provider’s easy access savings account, paying as little as 0.15% (HSBC Flexible Saver), you would only earn £75 gross per year while you wait.
For those who can’t tie up any of your money, you also need to make sure you are earning the best rates you can, albeit in an easy access account – don’t leave your money with your high street bank.
It's also important to make sure that your cash is secure. Funds in a lesser-known bank are just as protected as they are in a high street bank, as long as they are part of the Financial Services Compensation Scheme (FSCS) and the deposit is kept to within the FSCS limit of £85,000 per customer, per banking licence.
At the moment, the £85,000 limit is set in line with EU rules and therefore based on the value of €100,000. The UK's Prudential Regulation Authority will be taking over the responsibility of setting this level after Brexit and hopefully will retain the protection at this level – or even increase it - as savers need to feel that their cash is safe. We’ll keep you up to date as we find out more.
Table showing just how much more you could earn by switching money from a high street easy access account into the best two year fixed rate bond.
| Rate after increase following the base rate rise | Interest earned based on amount deposited | How much more interest earned on top two year fixed rate bond (2.26%) | |||||
| Provider/Account Name | AER % | £50,000 | £85,000 | £50,000 | £85,000 | ||
| Lloyds – Easy Saver | 0.20% | £100.00 | £170.00 | N/A | N/A | ||
| HSBC – Flexible Saver | 0.15% | £75.00 | £127.50 | £1,055.00 | £1,793.50 | ||
| NatWest – Instant Saver * | 0.30% | £150.00 | £255.00 | £980.00 | £1,666.00 | ||
| Barclays – Everyday Saver * | 0.30% | £150.00 | £255.00 | £980.00 | £1,666.00 | ||
| Santander – Everyday Saver | 0.35% | £175.00 | £297.50 | £955.00 | £1,623.50 | ||
| Best two year fixed rate bond - Secure Trust Bank (2.26%) | 2.26% | £1,130.00 | £1,921.00 | ||||
| * This is a tiered account. Rate shown based on balance of £50k and £85k. | |||||||
| Source: Savings Champion | |||||||
| Rates correct as of 29/08/18 | |||||||
If you have investments other than cash and would like to speak to someone about what you should be doing, call Claire or Leighton on 0800 011 9705.
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