Currencies

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Property

Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

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Currencies

Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Banks

RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

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Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Categorized | Banks, Financial

Will savers be offered a lifeline at the Autumn Statement?


Posted on November 22, 2016

“The British people did not vote on June 23 to become poorer, or less secure,” said chancellor Philip Hammond, at the Conservative party conference last month. His boss, Theresa May, singled out savers as among those who may need special protection from “monetary policy … with super-low interest rates and quantitative easing”.

Savers have now reached the point of no return. Hardly any savings accounts have kept pace with post-referendum inflation. Risk-averse savers are watching their nest eggs slowly shrink. This week, in his Autumn Statement, the chancellor has the chance to offer them a lifeline.

The problem hit home at the beginning of this month when Santander cut the interest rate on its market-leading 123 current account from 3 per cent to 1.5 per cent, bringing it below the traditional measure of inflation — the Retail Prices Index (RPI) — which is 2 per cent (and rising).

This was a blow to savvy couples who had the maximum £60,000 balance saved (£20,000 each, plus the same in a joint account). Tesco Bank still pays 3 per cent on its current account — but only up to £3,000.

And there is little hope of immediate relief for savers. A new Funding for Lending-style scheme allows banks and building societies to borrow up to £100bn at the current base rate of 0.25 per cent. As a result, financial institutions do not need our money. The interest on many accounts is a derisory 0.01 per cent, and many fixed rate accounts are closed to new customers.

Savers are increasingly criticised for not putting enough money aside for potential care costs in late age or for their retirement. Many are becoming bitter. They wonder how they are expected to do this.

Baroness Altmann, the former pensions’ minister has suggested that “care-saving” may need to be incentivised in the same way that pensions investment is. However, it is impossible to save for old age — or get a housing deposit together — when savings are constantly losing value.

The Autumn Statement on Wednesday could remedy this with a new range of NS&I Bonds with guaranteed returns, or lower-paying bonds with some inflation-proofing, made available for all. When the first batch was launched last year — known as “pensioner bonds” as they were limited to the over-65s and £10,000 per bond — £13bn was invested in weeks.

The one-year bond paying 2.8 per cent has already expired and the three year bond paying 4 per cent matures early in 2018. Will the chancellor offer any replacement? We shall have to wait and see. In the meantime, here’s my checklist of all the routes you could consider to get a better rate on your cash:

Savings bonds

Currently, only savers with maturing NS&I bonds can buy its Guaranteed Growth Bonds paying 1.2 per cent for one year, to 2.3 per cent for five years. These have the advantage of being 100 per cent guaranteed up to £1m instead of the Financial Services Compensation Scheme limit of £75,000 per bank. Otherwise, the best rates are from smaller building societies and challenger banks, but they usually require the money to be deposited for three or five years. The Coventry Building Society launched its Poppy Bond this month, paying 1.25 per cent if the money is deposited until December 2019.

Isas

The Help to Buy Isa launched last December initially looked attractive — but interest rates have recently been halved in some cases. There is a government bonus of 25 per cent on savings between £1,600 and £12,000 but anyone trying to accumulate the average first-time buyer deposit of £34,000 when savings are limited to an initial £1,000 and then £200 a month needs other places to put their money.

The new Lifetime Isa, available for 18- to 39-year-olds will be launched next April. It will allow £4,000 of investment a year and will also pay a 25 per cent bonus. If you are more risk-averse and have a longer term horizon, there’s always a stocks and shares Isa.

Regular savings accounts

It is equally hard work to build up a meaningful amount and to beat inflation through regular savings accounts. Most of the main banks pay about 5 per cent on these. They allow up to £3,000 to be saved over a year via regular monthly payments and usually require savers to have another account with the bank or building society. And because you only get a full 5 per cent on the first month’s savings, the final interest payment is usually disappointing. Such small sums will not help savers to keep pace with property prices.

Premium Bonds

Savers have to accept some risk to improve returns — or think laterally. The most acceptable risk (if sales are anything to go by) are Premium Bonds, which pay an annual average of 1.25 per cent in monthly prizes. These are the average returns and you may win nothing. My own experience is encouraging; if I win another £25 before the end of 2016, I will reach the 1.25 per cent figure. In fact, in only one year since I first bought Premium Bonds in 2001 have I received less than the indicative rate, even though I have never won a prize of more than £100.

Offset or overpay your mortgage

Many savers earning miserly rates have borrowings that cost far more than the interest received on their savings. Those with a mortgage can move to an offset mortgage, which allows the savings to reduce the interest paid on their mortgages while still being accessible when they need it.

For those with ordinary mortgages, paying more than the monthly payments will reduce both the amount owed and the length of the mortgage. Those paying insurance policies by monthly instalments will pay a fee plus interest which typically adds 20 per cent but can be more. The same applies to gym memberships.

Cut your credit

While savings rates have been falling, the interest rates on credit cards have risen. The average purchasing rate was 22.8 per cent in September for those who did not pay off in full each month, according to Moneyfacts. Overdrafts can be similarly pricey: if you have a substantial savings account, a month of a modest unauthorised overdraft can more than wipe out the annual interest paid.

Check your attic

The best interest rate in the market is that paid by banks and other financial institutions when they get things wrong. If you get compensation for payment protection insurance or mis-sold packaged bank accounts the interest can dwarf the repaid premiums if the claim goes back many years. The interest rate is 8 per cent. One couple who paid £4,000 for premium insurance 10 years ago got a recent payout of £9,000.

It is worth checking any old financial papers for such insurance if you had loans or credit cards in the 1990s or early this century. Jason Butler, the FT’s Wealth Man, told readers last month that he found old credit card bills in his loft that showed PPI was charged and received a cheque for five figures within three weeks of making a claim.

Consider peer-to-peer

Peer-to-peer lenders pay up to 6 per cent but savers have to be aware that the Financial Conduct Authority regulation does not protect their money if the company goes bust. Savers have to remember that the interest does not start to be paid until their money is lent out. If the borrower does not pay back their loan, the return is reduced.

Returns can be boosted by choosing a riskier spread and opting for five year accounts. Caveat emptor: there is no financial services compensation scheme and returns can be eroded by fees and bad debt.

Lindsay Cook is co-founder of MoneyFightClub.com, which offers online resources and consumer workshops. She is co-author of “Money Fight Club: Saving Money One Punch at a Time”, published by Harriman House