Look beyond NS&I for better rates

Newcomers to NS&I might be less cheery

Spread your cash among several accounts to earn more interest than the state-owned bank pays.

National Savings and Investments (NS&I) – the UK’s state-sponsored savings bank – is cutting the maximum amount that can be put into its one- and three-year guaranteed growth and income bond accounts from £1m to just £10,000.

For decades, wealthy savers have been attracted to the security of these bonds. They guarantee all the investors’ money, whereas deposits in regular high-street bank accounts are only protected up to £85,000 under the Financial Services Compensations Scheme (FSCS). Now, however, anyone looking to shelter that kind of money will have to spread their cash around several banks to avoid saving more than £85,000 with one institution. (Existing bonds will be unaffected.)

The problem faced by NS&I is that because it is a government-backed bank, it is set a financing target each year and cannot go over that. (This limit is in place to ensure that it doesn’t dominate the savings market.) So when NS&I reaches its annual funding targets, it either has to cut interest rates, or reduce the amount that people can save with it.

On a more positive note for new savers, this means that now is a good time to reassess where your cash is, take a lunch hour to find better-paying accounts, and spread your money around. A couple who spread £1m across six joint accounts – where the FSCS protection is doubled to £170,000 – will be fully FSCS-protected and able to achieve a better return than that offered by NS&I. It just takes a little legwork.

The NS&I accounts in question pay up to 1.5% over one year or 1.95% over three. That one-year rate is beaten by Atom (2.05%), Gatehouse (2%), BLME (1.95%) and several others. Over three years, you can get a better rate than NS&I with Gatehouse (2.33%), RCI (2.31%), Atom Bank, Shawbrook Bank, BLME (all 2.3%) and several others.

What if I don’t bank online?

The people really stung by NS&I’s move are savers who don’t bank online. Many of the best-buys are offered by banks that have little or no high-street presence, and many also don’t offer telephone or postal banking. Although inconvenient, it makes sense that these accounts have the best rates, as they’re likely to have the lowest overheads.

If you want to be able to bank in branch, over the phone or by post, then your best options are as follows: Secure Trust Bank’s one-year bond pays 1.88% and can be operated over the phone; Al Rayan Bank’s one-year bond (1.86%) can be accessed in all three ways; and Habib Bank Zurich’s one-year bond (1.85%), can be accessed by post or in branch. For three-year bonds that aren’t online-only, you can turn to Secure Trust Bank (2.28%) and Tandem Bank (2.25%) for telephone access, while Zenith Bank (2.22%) offers postal banking.

Although current savers are unaffected it’s possible that NS&I could lose a significant number of customers as a result of the change, as people wake up to the fact there are better rates available elsewhere. For example, all the one-year bonds listed above beat the three-year rate offered by NS&I, and even if you can’t bank online, there are two-year bonds beating the NS&I three-year rate, with Shawbrook offering 2.14%. It’s just a question of whether you are prepared to abandon a known name like NS&I to get a better rate from a bank you may not have heard of before. But if that’s your main concern, then I’d suggest you go ahead and change – rest assured that all the accounts mentioned above are covered by the FSCS.

Pocket money… don’t forget your child trust fund

• Is your financial advisor charging you too much, asks Ruth Emery in The Sunday Times. Unfortunately, it’s not always easy to tell. Working out how their fees compare with those of other advisors can be difficult owing to complicated charging structures, the secretive nature of the industry and a lack of data.

Although financial firms do not have to publish their charges on their websites, they must explain them before they give you any advice. The problem is they “employ myriad fee structures, including percentage of asset, flat fees and hourly rates”, says Emery.

The cost of financial advice also varies widely from provider to provider, with initial one-off fees starting from 0.5% and rising to 5% of your invested assets, while the annual fee could be nothing or as much as 2%, according adviser review site VouchedFor.

The reviews company has now asked advisers listed on its site to publish their charges. So far, 423 (representing 263 firms) have done so. Based on this, VouchedFor estimates that, typically, an advisor charges an initial fee of 1.72%, and an average annual charge of 0.69%.

• A million children could be missing out on up to £1,000 in tax-free savings, says Emma Gunn in the Daily Mail. Six million child tax funds (CTFs) were opened between September 2002 and January 2011, but one in six of these – containing a combined £1bn – has been labelled “addressee gone away”, effectively meaning they have been forgotten by parents.

These accounts had contributions from the government in the form of a £50 or £250 voucher to use to open the account, depending on when they were opened, and an additional government deposit when the child turned seven. You can locate a forgotten CTF via HMRC’s child trust fund page.

• Hodge Lifetime has become the first lender to offer a retirement interest-only mortgage to homeowners in England, Wales and Scotland. Those aged 55 and over can borrow against their home, but unlike traditional mortgages, there is no end date or upper age limit for applicants, says The Sunday Times. The amount borrowed is repaid when the property is sold, either when the borrower dies or moves into long-term care. The interest rate ranges from 3.59% to 3.99%, depending on circumstances.

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