Last week, I wrote that it was time for most of us to diversify in a “new and exciting way” – into cash. (See: The only worthwhile way to diversify.)But as several people have pointed out to me since, that’s easier said than done. Sure, the rates on savings accounts have been going up and up in the last few months. According to the best-buy tables, you can now get well over 5.5% from a multitude of banks – but let’s not forget we are talking about UK banks here. Everything comes with a sting in the tail and savings accounts are no different.
Indeed, according to Moneyfacts, while more than 90% of variable savings accounts now pay rates of 5.75% or more, three-quarters of those accounts come with some kind of restriction or unhelpful condition, or depend on an introductory (and never to be repeated) rate. Catches, says the FT, include allowing only a limited number of withdrawals every year, or deducting all the interest earned on the account in any month you make a withdrawal.
Some accounts are also only available to those taking out a mortgage with, or shifting their current account to, the same organisation. So what’s best? Well, if you haven’t used up this year’s Isa allowance yet, and you don’t fancy using it to pick up a couple of the big mining companies on the cheap, your first port of call should be a cash Isa account. Consider the National Savings & Investments (NS&I) Direct ISA, which currently pays 6.3% and guarantees to pay 0.55% more than the base rate until at least 5 April 2008. An opening balance of £1,000 is required, but hopefully that isn’t something that will put too many MoneyWeek readers off. Outside Isas, there are plenty of dreadful options out there (the Halifax Liquid Gold account still pays a pathetic 1.1%, for example). But look among the instant access accounts (those that do not ask you to give notice to withdraw money or penalise you for doing so), says Moneysavingexpert.com, and there are some great accounts to be had.
The best offering of the lot is ICICI’s HiSave. The account offers 6.3% and promises to pay 0.25% above the base rate until at least the end of this year. However, given that they now pay 0.55% more and have been top of the charts for two years, that will hopefully be the case into next year too. And if you are saving a lot of money and are concerned about keeping it all in one account (note that if your bank collapses you will only get back the first £2,000 and 90% of the next £33,000 you have saved), why not spread it around a little? Lots of accounts offer good rates and, as Martin Lewis of Moneysavingexpert.com says, “Banks are like bridges. They almost never collapse, but when they do the splash is huge.”