As we expected, the appalling rate cuts made to the NS&I on-sale easy access accounts has not only ended the competition that we had seen in the savings market, but it has actually triggered a collapse of both on-sale best buy rates AND off-sale previously best buy accounts.
RATES ARE CORRECT AS AT THE TIME OF PUBLICATION (04/12/2020). All up-to-date rates can be found on our Best Buy tables.
And although, according to the Daily Telegraph, half of NS&I savers plan to remain with the state bank, the money that is and is still expected to be pouring out of the now rock bottom accounts has had a devastating impact on the savings market – and easy access accounts in particular.
In September, just before NS&I announced its news, the best easy access rate on the market was with Coventry Building Society. Its restricted access Double Access Saver (Online) account was paying 1.20% AER – and the average of the top five easy access accounts in our best buy table was a relatively healthy 1.08% AER.
Today, the best rate on offer is just 0.60% AER, offered by United Bank UK (UBL) – and the average of the top five is 0.56%. This is the lowest we have seen easy access rates since Savings Champion's launch nearly a decade ago.
So, what can savers do?
As ever, rather than just delivering the bad news, we try to offer some help too – although if you need to keep money on easy access, it’s a tough challenge. But here are a few ideas to mull over…
Automatic savings app, Chip, has launched a new savings account offering a return of 1.25% on balances of up to £5,000 – called Chip+1*. And the cash saved into the Chip+1 account is Financial Services Compensation Scheme (FSCS) eligible, as the money is placed into a UK authorised bank - ClearBank.
BUT – there are a number of things to be aware of before rushing off to open the account (and downloading the app of course!).
First, when you sign up to the app you will also be signing up to open banking – so you need to give your bank permission to allow the Chip app to view and analyse your spending habits, and automatically save a small amount of your cash each week – directly from your bank account.
Of course, the rate of 1.25% is extremely competitive at the moment – especially as we continue to see easy access rates dropping. However, as ever, it is important to read the small print to make sure that you get what you expect.
For example, the rate of 1.25% is calculated weekly and added to your Chip+1 balance every 12 weeks and this is not compounded (i.e. you don’t earn bonus on bonus). If you delete your account before the 12 week window has ended, you lose any bonus accrued within those 12 weeks.
And in order to earn the 1.25% return on £5,000, you will need to be signed up to the automatic savings service (AI) – and there is a charge for this service of £1.50 every 28 days. You are signed up to the AI service when you open your Chip account – if you’d prefer not to be, you will need to opt out and, while you will still have access to the Chip+1 account, you will only be able to earn the 1.25% on up to £2,000 rather than £5,000.
The Chip+1 account is not available to everyone. There are two ways to get the account;
· If you sign up to the Chip app and refer a friend to Chip you will both have access to the Chip+1 account.
· Or if you are provided with a VIP passcode given to you by a friend or by one of Chip’s partners – which includes Savings Champion.
So, if this is something you might like to try, use the following passcode to activate your Chip+1 account. CHAMPION20
But remember, this is something that is a little different, so read the small print and make sure you understand the nuances and fees that apply to the Chip app, the AI automatic saving service and the Chip+1 account.
FIXED TERM BONDS
If you don’t need easy access to all your cash and you are worried that things are going to fall further, perhaps locking some of your money into a fixed rate bond is something to consider. Not only could you earn more interest than that available on an easy access account, but you can rest assured that the interest rate on the cash held in the bond will remain the same until the bond matures.
At the moment, the best 1-year bond is paying 0.75% AER and the best 2-year bond is paying 0.95% AER. Take a look at our Fixed Rate Bond Best Buy table for more information.
Some Sharia compliant accounts pay a little bit more. For example, at the time of writing the best 1-year bond is with Gatehouse Bank and is paying 0.80% AER.
Sharia fixed term accounts are different to standard fixed rate bonds as they pay an Expected Profit Rate (EPR) rather than a fixed interest rate, in order to comply with the strict ethical code of Sharia banking principles. This means that the rate is not guaranteed, although it’s worth noting that to date, the offered EPRs have always been paid on the fixed term accounts, as they are provided with that objective in mind.
For more information on how Sharia accounts work, take a look at our previous article.
PRIZE DRAW ACCOUNTS
As well as cuts to the savings account, the rate applied to the Premium Bond prize draw fund has also been reduced – from 1.40% to 1%. This means that the number of prizes paid out has fallen, as the table below indicates.
Although it’s disappointing to see the interest rate on the prize fund and therefore the number of prizes available reduced, I think many will hang onto their Premium Bonds, even though there is a risk that they win nothing - or certainly less - as there simply isn’t anywhere else that is more compelling to move to.
As we reported recently, as well as the NS&I Premium bonds, from time to time some providers launch Prize Draw funds. Whilst they are not always available, as savers continue to suffer cripplingly low interest rates, these prize draw funds may offer a beacon of hope – however it’s important to understand that you may well win nothing and therefore earn even less on your hard-earned cash.
If you’re dismayed with the rates being offered by the banks and would like to explore other options outside of cash why not get in touch. We’re currently offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth up to £500. You can find out more here.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).