Savers have had a tough time over recent years.
Interest rates have been in the doldrums for nearly a decade, whilst inflation has, at times, eaten away at the value of a saver’s capital.
It’s nice therefore, to be able to bring you a couple of pieces of good news.
New inflation beating option
The government has announced that a new, ‘high interest’ account, will be launched in the Spring of this year.
The new Investment Guaranteed Growth Bond will be offered by National Savings & Investments (NS&I) and will pay an ‘indicative’, yet to be confirmed rate, of 2.2% gross.
Savers must tie up their capital for three years. But, if the rate is confirmed at 2.2%, this will be significantly higher than the current best buy three-year fixed rate bond. Furthermore, with the introduction of the new Personal Savings Allowance, most savers will pay no tax on the interest they receive.
Unfortunately, it appears that the maximum allowable contribution to the Investment Guaranteed Growth Bond will be just £3,000. But, as one supermarket famously said: “every little helps!”
We will update our website when more details of the new bond are released.
Compensation for savers
From 30th January, savers will get higher levels of protection if their bank or building society goes bust.
The Financial Services Compensation Scheme (FSCS) currently gives savers £75,000 of protection, per person, per institution.
But, due to the falling pound, and the need to keep compensation levels across the EU at consistent levels, from next week, this will be pushed up to £85,000.
Only depositing the maximum amount covered with a single institution makes sense; even if it can sometimes feel like hard work and a bit of a hassle.
But, savers often have problems identifying the banks and building societies which are owned by each institution. This has, in the past, led to confusion and some savers placing too much with a single institution, leaving a proportion of their capital unprotected.
Which? the consumer rights organisation, has an excellent tool to help savers understand which brands are part of the same institution.
Click here to use the tool now.
But beware rising inflation
The dark cloud on the horizon for savers is inflation.
Put simply, if the interest rate you get is lower than inflation, no matter what your statement says, you are losing money in real terms.
New figures show that the Consumer Prices Index (CPI) hit 1.6% in December and is predicted to rise further as we head in to 2017.
If savers are prepared to tie up their capital for at least three years, it is currently possible to find a ‘real return’. But, if inflation continues to head north, the options will become more limited, perhaps to the point where there are none.