Rate cuts spell yield cut for savers

Rate cuts spell yield cut for savers

In almost each and every economy interest card is a common feature. On 6th November the Bank of England cut interest rates by 1.5% per cent, bringing them down to 3% - the lowest rate since 1955. Interest rate cuts are the enemy of savers. On an investment of £5000, the difference between 1 per cent in interest rates can cost £50 a year, but the more you save, the more your yield will be.

With the credit crisis in full swing banks are becoming increasingly reluctant in both lending to each other and to the consumers. With this in mind, banks will be keen to find other areas in which to profit and cutting their savings rates is one of the most obvious policies if interest rates go down. The major question that then arises is how do you beat the cuts?

In the subsequent paragraphs we give you the tips on how to manage the situation. Even if there are cuts in the base rate it's not always the case that banks will cut rates on their savings products. If they do change the rates then you will be notified by a letter. If this happens, or if you don't have a savings account yet, then it is probably a good time to consider switching to another account that could potentially get you a better yield. Just be aware that with savings there is no way to make money fast. Your money needs a long time to mature, but over time it can be very lucrative.

ISA

Getting an ISA is currently one of the best ways to annually save small to medium sized amounts, because you pay no tax with it. During the 2008/2009 tax year the rules are changing, so you'll be able to put £3600 worth of cash into an ISA, and the same amount into stocks and shares. Despite previous complaints that ISAs were overly complicated, they're now a very simple product.

Savings Accounts

Most savings accounts do not have fixed rates of interest; rather they track the Bank of England's base rate. This means that a savings account's interest rate will normally drop when interest rates fall. Some accounts are fixed, but these normally don't let you withdraw during a certain amount of time. The best current rate for this is ICICI's fixed 1 year term deposit, which pays 6.85 per cent. Meanwhile, other banks offer rates that are guaranteed to beat the base rate until January 2012. ICICI also offers a guaranteed account paying 6.41 per cent that is guaranteed to be above the base rate by 0.3 per cent until December 2011.

Article Source: http://www.wisdomextract.com

Ramond Verde is author of this article on isa. Find more information about isa here.

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