For those of us who still have disposable income to stash away, prospects are the best they’ve been for seven years. In an attempt to tempt savers towards their own institution, banks and building societies are offering highly attractive interest rates on their top savings accounts.
Research by the financial information company Moneyfacts found that savings account interest rates are up to 1.3% higher now than they were the last time the Bank of England base rate stood at 5%, which was eighteen months ago in December 2006. Savers who are happy to stash their money away for a predetermined period can earn up to 7.15% on their savings in a fixed rate bond, whilst the top rate then only reached 5.85%. Those looking for a regular savings account can earn a staggering 10% with the Halifax Regular Savers account at present.
The aftermath of the credit crunch with its resultant high borrowing costs means that banks and building societies need to attract as many customers as possible and thus they are offering top savings account interest rates in an attempt to do so. Savers also are keen to find low risk investments after the rocky road the stock market has been following.
An analyst at Moneyfacts, Michelle Slade, commented, ‘People with existing savings or those starting to save, including first-time buyers saving their deposit, find themselves in a strong position as the banks and building societies continue to fight to tempt savers through their doors.’ She added, ‘Institutions are adding a wider variety of accounts to their range in order to ensure they have an account to suit every saver’s needs, rather than having the saver go to its competitor.’
This means whatever the customer requires, whether it be a regular savings account, an instant access savings account or a fixed term savings account, there is one available to be opened immediately. Of course, the proliferation of accounts means shopping around becomes ever more difficult. Moneyfacts found that over the last year alone the number of variable rate accounts rose from 960 to 1,067, whilst the number of fixed rate accounts jumped from 394 to 426.
Michelle Slade says customers should be aware that banks are not obliged to inform savers that their present accounts might not be the best value for money. She advised customers to check that their savings are not being eroded by inflation by using best buy tables to find the top bank savings accounts or building society saving accounts.
Meanwhile, current accounts serve the customer far less well. A report by the Office of Fair Trading (OFT) has found customers short-changed by their banks, who are deriving much of their £8bn revenues ‘opaquely’. There are over 54 million active current accounts in the country but many customers are unaware of the costs of their bank account. John Fingleton, chief executive at the OFT says, ‘Personal current accounts are a vital gateway to effective participation in the economy. But this market is not serving consumers well.’
81% of the banks’ income comes from bank charges on customers who have insufficient funds in their accounts and from interest payments. However, many customers do not know how much they are paying in charges and over three-quarters of them have no idea of the interest rate on their bank account. The OFT found that banks earned the equivalent of £152 per active bank account in 2006 – more than on savings and credit cards combined.
Speaking to the BBC News, Mr Fingleton said the OFT wanted banks to develop ways that they made information available to their customers and in a much clearer fashion. Otherwise, he said. ‘If the banks do not play ball, it will be very difficult to avoid regulation in this market.’