The spending axe is about to fall - so save while you can

Everyone is waiting for chancellor George Osborne’s autumn statement to see just where the spending cuts will fall.  Public sector workers are even more anxious to find out than most whether they will be victims of the Chancellor’s axe and lose their jobs.  This uncertainty about future prospects is prompting people to save. But what are your best options?

Regular Savings Accounts

Some of the regular savings accounts offer attractive rates but they are often subject to a number of restrictions on withdrawals and the top rates may require you to move your bank current account as well.  They frequently include a one year introductory bonus too so you will have to keep a close eye on the market.

Current accounts can be an option too.  Santander’s Preferred, In-Credit account, for example, which pays 5% on credit balances looks superficially attractive but it is a current account and the rate is paid only on balances up to £2,500.  The weak-willed might find it difficult to save unless the money is separated out from everyday spending. 

Norwich & Peterborough Building Society’s Regular Saver account offers the top rate of 4% gross but this includes a 1.5% bonus for the first year so you will have to think again after 12 months if N&P drops the rate.  You can pay in as little as £1 a month up to a maximum of £250.  The account offers instant access on one withdrawal a year and you must make a contribution to the account every month to qualify for the annual bonus. Clearly, if you were made redundant you might have to consider switching to an instant access account with no restrictions at this point as you would need to make regular withdrawals.

You can open an account, online, at a branch, by telephone or by post.  Make a note in your diary when the year end approaches to check what is available elsewhere at that time as you may need to switch. 

N&P also has a family regular savings account which pays a higher 5% gross on savings of £1 to £250 a month but it is only available to families with dependent children under the age of 16, or 18 if they are in full time education.  The flat rate of 2% is fixed for the first year, variable thereafter, with a 3% bonus if you save every month for a year.  Interest on both accounts is paid annually.

If you are prepared to move your current account to N&P you can open a Gold Regular Saver account which also pays 5%.  To qualify you must transfer a minimum of £500 a month into the Gold Current Account and you can then save up to £250 a month is the Gold Saver Account and earn 5%.

Scottish Building Society has a regular savings account paying a variable 4% gross with a minimum monthly investment of £25.   You can open an account at a branch or by post and the account offers unlimited penalty free withdrawals which might be more suitable if you are saving to provide a cushion against redundancy.

Principality Building Society and Saffron Building Society also have regular savings plans with minimum investments of £20 and £10 respectively, both offering a fixed rate for the first year of 4% gross.  Maximum investment in the Principality scheme is £500 a month and just £200 a month at Saffron.  You can open an account at either at a branch or by post but not online.  But these will not be suitable if you think you might need your money in a hurry because they are both one-year bonds.

Easy Access Accounts

With such uncertainty about job prospects some may prefer to save in an instant access account. 

The AA Internet Extra account paying a headline rate of 2.80%, is currently the market-leading easy access account.   Meanwhile, ING Direct has an instant-access savings account paying 2.75% on balances of £1 and above. However, this account must be managed online or over the phone and is also only available to new customers of the bank.

The Post Office Online Saver account also pays 2.75% on deposits of £1 upwards, but the rate includes a 12-month bonus of 1.25% so you will have to switch again to find the best rate after the first year.  Tesco has an instant access account paying 2.75% but this too includes a 1.5% bonus.  Santander’s ESaver also pays 2.75%.  These accounts can all be opened online.

Cash Isas

Cash Isas are not really suitable for savings which you might need to withdraw because once the money is removed it cannot be paid back into the tax sheltered wrapper - except during the same tax year.  It cannot be repaid at all if you originally invested the maximum for that particular tax year.