Sexy Savings At 7%

By Ed Bowsher | 6 May 2008

| 5 Comments

This email was originally sent to Fools as part of our 'The Good, The Bad and The Ugly' email series.

Savings are sexy at the moment.

The Bank of England has cut its base rate three times since July but interest rates on some of the leading savings accounts haven't followed the base rate down. Normally you'd expect high-street banks to follow the Bank of England's lead.

The reason why savings rates have stayed high is simple. It's the credit crunch. Many lenders now need to raise more money from savers rather than by borrowing from each other, and that's meant plenty of great savings accounts to go for.

It's a welcome situation for savers. After all, I suspect that at least some Fools are busy trying to build a ‘rainy day' safety cushion in case the economic climate continues to deteriorate.

But what about the 7% return?

Today's article was triggered by news of an increased savings rate for a fixed-rate savings account operated by Icelandic bank, Icesave.

If you have a lump sum of money you're prepared to lock away for at least a year, Icesave's Fixed Rate Savings Account will pay you 7.01% AER.

AER is the rate you get before deducting tax. Basic rate taxpayers will have 20% deducted automatically, which means you'll get 5.61% after tax. Higher rate payers will have to pay an additional 20%, so the return after tax is 4.21%.

For a six-month term, the rate is 6.86% AER. For two years it's 6.6% AER. You need a minimum deposit of £1000.

Looks good to me........

Let's look at Icesave's main competitors:

Leading fixed-rate savings accounts for one year with no catches

I think those are all pretty attractive rates.

If you'd like to find out about savings accounts with catches, for example the Alliance & Leicester Save and Protect account, which pays a whopping 15% return, read this article.

If you'd prefer to go for an instant access account, consider these 'no-catch' accounts that all pay 6.5% interest: the Kaupthing Edge Savings Account, the Birmingham Midshires e-saver account, and the Abbey Instant Access Saver.  

No money to spare?

Of course, there is one big potential problem with all of this. You may not have any spare cash to save. That's understandable; I've been in the same boat myself in the past.

But we do live in uncertain times, so I'd urge you to try and save if you possibly can, just to give yourself a safety cushion if we get hit by a recession. If you're wondering how to find some money to save, perhaps regular budgeting could help.

Also take a look at our twice-weekly Discounts And Deals articles. Hopefully our money-saving tips could help you reduce your household spending and find some cash to save.

So all that's left to say is: Happy Saving!