Martin Lewis advises on savings accounts and premium bonds
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Britons should be making more of their savings especially as rising inflation means their cash is worth less. The latest Bank of England data reveals that over a fifth (21 percent) of balances in easy and instant access accounts pay no interest on a shocking £265.5billion, an increase of £20billion compared to a year ago.
The Bank of England is expected to increase interest rates again this month with some experts predicting a rise of 0.50 percentage points to 2.25 percent.
Derek Sprawling, savings director of challenger bank Paragon urged savers to stop delaying placing their money in saving products.
He said: “The Committee seems certain to continue its trend of Base Rate rises, and now with growing speculation that rates could increase by as much as 0.75 percent – though a rise of 0.50 percent is still more widely anticipated.
“Irrespective of the rate of increase, expectations remain that the Bank is on a course of rises that will reach to a Base Rate of 4.0 percent in the second quarter of 2023.”
Savers are facing the challenge of balancing which is the right savings products for them with when is the best time to act and secure the best rate.
Given recent rate rises many savers may take a cautious approach and delay making the decision in case the Base Rate increases further throughout 2023.
Mr Sprawling added: “I can understand the thinking behind this decision. If you have seen the base rate grow from 0.5 to 4.0 percent in a year, then it is not much of a leap of imagination to envisage rates of 4.5 percent and above.
“Savers wishing to make their money, and an interest rate increase, do the most it can for them at a time of high-inflation is an entirely reasonable position – but there must be caution, as rates will not continue to rise exponentially, and the Base Rate may peak sooner than some expect.”
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Mr Sprawling said there can often be a big difference in the savings rates offered by challenger banks and those on the high streest.
He added: “For instance, it is not unknown to see two-year fixed savings account that may only offer around 1.60% AER from high street providers.
“These rates are though in marked contrast to challengers, which can often provide a far greater return for savers – with two-year fixed rates on savings of over 3 percent AER available today.
“While it takes time to find the right products to fit an individual’s circumstances, the benefits of doing so are apparent – and when savers need to be making their money work to help pay for the essentials in the years ahead, and not just life’s little extras, I urge everyone in a position to do so.”
When it comes to whether to choose an ISAs over a svaings account, the expert said this could be a better option for higher-rate taxpayers.
Mr Sprawling added: “ISAs remain an excellent way of building a savings pot, particularly for higher-rate taxpayers or those with significant savings in non-ISA accounts who may be incurring interest beyond their personal savings Allowance.
“The task then for savers now looking ahead to 2023 and beyond is find the right products for their circumstances, to not limit the range of products and providers they consider, and to make the best decision for them at the right time.
“This is not the most exciting thing on anyone’s to-do list – but one which you may end up regretting if you hold out for rates that are not likely to transpire.”
Paragon is a UK based bank offering competitive rates for savings and cash ISAs.
If savers can afford to lock away money for five years they will be rewarded with an interest rate of 3.10 percent on savings.
Alternatively, they can choose a one year fixed rate account offering 2.55 percent interest.
In addition, it also offers a Green Three Year Fixed account with 3.00 percent interest AER.
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