Savings account interest rates fall below 1% but get 5% with A&L

03 December 2008 / by Rebecca Sargent
Following the Bank of England's base interest rate cut to three per cent, savings account rates are falling to below one per cent.

According to the Money Mail, this means that some savings accounts with a balance of £5,000 pay just £4 a year in interest after tax. In fact, some leading high street lenders such as Lloyds TSB and Nationwide offer easy access savings accounts with a rate of just 0.1 per cent before tax on a balance of £5,000.

However, despite the poor returns on such accounts, there are still some relatively high interest rates available. Such accounts include the Alliance & Leicester eSaver which offers an AER of five per cent, and the Halifax Web Saver Extra offering four per cent AER.

But, as speculation mounts over further interest rate cuts expected tomorrow, experts are recommending fixed rate savings accounts. Moneysavingexpert.com's Martin Lewis points to the highest interest rates being on fixed term accounts.

And Andrew Hagger of Moneynet.co.uk has been urging savers to fix their rates since the last base rate cut in November. "Savers with funds available to put away for between 6 months and 2 years still have time to lock into a decent fixed rate, but only if they're quick off the mark," he said.

"If base rate were to be slashed to 1 per cent then fixed rate savings products would perhaps offer 3 per cent or 3.5 per cent at best," Mr Hagger added, although rates of above 5 per cent are still currently available.

Current fixed rate savings deals available include the Halifax International Fixed Rate Web Saver offering 5.1 per cent AER and the Bank of Scotland International Fixed Rate account, offering 5 per cent on minimum opening balances of £10,000.

Bonds are also a popular choice as more lenders introduce competitive deals to lure savers and shore up their balance sheets. Alliance & Leicester is one of the latest lenders to introduce new fixed rate bonds offering a headline rate of 4.05 per cent. Savings manager at A&L, Martin Leake said:

"With the recent dramatic cut in the Bank of England base rate and speculation that further cuts may be in the pipeline, these Bonds provide certainty of return for savers."

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