Desperate banks are offering rates of up to 7% on fixed savings accounts in a bid to attract more investment.
The credit crunch has left many banks short of funds, and as a result they are charging customers far more for borrowing, but rewarding savers far more than they would in normal market conditions.
As an indication of this, the last time savings rates broke the 7% barrier the base rate was 5.75%, or 0.75% higher than it is today.
So if you are fortunate enough to have some spare cash lying around, now would be an excellent time to lock it away.
Fix for maximum benefit
If you want to make the most of your savings, you’ll need to put it in a fixed rate savings account rather than an instant access one, as the rates are up to 0.5% higher.
Why? The money you lend to the bank is of limited use to them if you can simply withdraw the lot at any stage. Thus they pay a premium – i.e. a higher rate – to ensure you won’t touch your money for a specified amount of time.
So which account should you choose? Icesave’s one year fixed rate bond is the best deal at the moment, paying 7.01%. The catch is you’ll need to deposit at least £1,000.
Short term alternatives
If you don’t have enough savings to meet that minimum investment, Birmingham Midshires’ Direct Internet Fixed Rate Bond allows you to deposit as little as you like while offering a decent 6.81% rate.
Alternately, if you’re worried about locking your money away for so long, there are a number of attractive six month accounts available. Both Cahoot and Birmingham Midshires pay a 6.87% rate on their shorter term bonds, but again it’s the latter you should go for if you want to avoid the £1,000 minimum deposit.
The downside with six month bonds is you may not be able to find similarly attractive rates when the account matures, so think carefully about how long you can realistically afford to lock your money away for.
| AER | Term | Minimum Balance |
| Icesave Fixed Rate Bond | 7.01% | One Year | £1,000 |
| Kaupthing Edge | 6.86% | One Year | £5,000 |
| BM Direct Internet Fixed Rate Bond | 6.81% | One Year | £1 |
| BM Direct Internet Fixed Rate Bond | 6.87% | Six Months | £1 |
| Cahoot Fixed Rate Bond | 6.87% | Six Months | £1,000 |
| National Counties Savings Bond | 6.82% | Six Months | £1,000 |
