Savers expect rates to rise and Santander reckons it has the answer

It’s no surprise to learn that 68% of savers expect the Bank of England base rate to increase over the coming year.  On the back of this, Santander is predicting a shift in demand towards savings accounts that track the base rate over the next 12 months.  Well, they would say that wouldn’t they  - Santander has recently launched new issues of its Loyalty Tracker Bond and Tracker Bond and nobody else is offering tracker savings accounts – which is surprising given the dominance of tracker mortgages.  Tracker savings accounts would allow mortgage lenders to match assets and liabilities and secure a stable source of funding.

The new Santander tracker issues are paying 3.25% and 3.00% respectively.  The accounts track any changes in the Bank of England base rate for one year, so if interest rates start to rise over the next 12 months, customers will benefit from the increase.  

The only problem is that to be eligible for the top rate of 3.25% on the Loyalty Tracker Bond you must have held a Santander current account for three months and pay in a minimum of £1,000 a month.  The Tracker Bond is less restrictive, but at 3% with the base rate tracking lasting for only a year, it is only marginally better than competitors paying 3%.  Minimum investment in both bonds is £10,000 and you can open the 3% Tracker Account online at www.santander.co.uk.  Hopefully, some other bank will take up the running and offer a truly competitive tracker account.

Rates continues to decline so it is encouraging to see that HSBC is increasing the rate paid on its one year fixed rate bond to 3% from 1st October.  Minimum investment is £2,000 with a rather low maximum of £49,999.  This will only be available until 31st October.  Interest is paid monthly – useful for those needing to subsidise income - or on maturity.  Similarly, Northern Rock has launched a new EBond paying 3% fixed for one year and has a low minimum investment of just £1 and a maximum of £250,000.  It also pays interest monthly if required.

Easy access accounts

For those who require access to their money NatWest has dramatically increased the rate paid on its ESavings account to 2.85%, admittedly through the device of a 1.85% bonus for just the first year. 

This is an internet-only account but a quick check on the NatWest website gives no information on the increase in interest rates and precious few details except that the page was updated last on 24th July 2009.  Not very impressive at all and you wonder how these people manage to remain in business.  Moreover the higher rate is only available to new customers.  So much for treating customers fairly!

But in any case, the NatWest easy access account doesn’t beat the 2.9% paid by Stroud & Swindon Building Society on sums of £1,000.  This account won’t suit everyone however as you have to give 90 days’ notice of withdrawals.  Next best is AA’s Internet Extra paying 2.8% on sums of £1 or more which includes a 2.3% first year bonus and you can open an account online at www.theaa.com. 

Ing Direct, the Post Office and Santander are all offering 2.75% on sums of £1 or more for one-year investments.  The Ing Direct account offers an attractive guarantee on the rate for the first 12 months – but the account is only available to new customers.  You can open an account online or by telephone.

If you don’t qualify because you are already an Ing customer the Post Office account looks the better bet as the 2.75% rate includes a bonus of 1.25% compared with a first year bonus of 2.25% at Santander. But check terms and conditions, particularly regarding withdrawals if you are likely to need your money in a hurry.

Fixed rate bonds

The banks and building societies constantly change the terms and conditions of their accounts in order to make it to the top of the best buy tables.  There are not many 18 month bonds around so Skipton’s new product paying up to 3.00% on balances over £50,000 is definitely in the running.  To get the top rate of 3% you must deposit £50,000 or more. At £500 to £25,000 the bond pays 2.4% with 2.75% for sums of £25,000 to £50,000.

Best fixed rate one-year bonds open to smaller savers come from Northern Rock, First Save and Wesleyan Bank all paying 3%.  Minimum investment at Northern Rock is just £1 and £1,000 at First Save and Wesleyan.  The Northern Rock account can be opened by post and the other two are online accounts.  But remember you cannot make any withdrawals during the fixed rate term of these bonds so keep some ready cash available in an easy access account.

Top of the table for two year bonds is Stroud & Swindon Building Society which is paying 3.7% gross on sums of £1 or more.  The bond is available by post, telephone or at a branch.  The account has the added advantage that you can take monthly interest.  For further details call 0845 1227926.