Get into a bargain fix

By SYLVIA MORRIS, THIS IS MONEY AND DAILY MAIL SAVINGS EXPERT
Updated:

 

MONTHLY income seekers can find good fixed rate deals from some banks and building societies. But these top rates are unlikely to last - so fix now. Although base rate was left unchanged by the Bank of England Monetary Policy Committee on Thursday, economists predict it could fall later this year.

This is in stark contrast to expectations just one month ago when money markets predicted that interest rates could be 4.75% by the end of this year. That figure is now down at 4%.

Jonathan Loynes, at independent consultancy Capital Economics, says: 'We expect base rate to fall by 0.5% in the second half of the year to 3.5% because of slowdown in consumer spending and the housing market.'

At fund managers Gerrard, chief economist Simon Rubinsohn says: 'Rates could stay where they are, but they are more likely to fall than rise. Fixed rate deals of 4.25-4.5% for one or two years look attractive.'

Patrick Connolly, from independent financial adviser Chartwell Investments, says: 'These top rates from a selected number of banks and building societies are likely to come down. We recommend fixing at these rates for two or three years.'

But savers looking to re-invest their five-year National Savings Pensioners Bond Series 4, which start to mature tomorrow, will have to suffer a sharp fall in income. This series of bond pays 6.5% (worth 5.2% after 20% savings tax). The current five-year 29th Issue pays just 4.05% (3.24% ), while the two-year Pensioners Bond, Series 20, pays 3.65% .

They are a poor alternative to what select banks and building societies have on offer. Top deals come from Co-operative Bank fixed at 4.34% (worth 3.47% after 20% savings tax) on a minimum £2,000 fixed for two years. Over three years, Birmingham Midshires pays 4.55% (3.64% ).

These rates are also ahead of those offered by insurance companies on their guaranteed income bonds. If you prefer to stick to variable rate accounts, tax-exempt cash mini Isas rank among the best deals, especially for taxpayers.

Top payers - which give you easy access to your money so you can move quickly if the rate becomes uncompetitive - include HSBC at 4.27% , Direct Line at 4.12% and NatWest at 4% . You can put £3,000 each tax year (April 6 to April 5) into a cash mini Isa and earn tax-free monthly income whatever your tax rate.

You can switch your existing cash mini Isas to HSBC of Direct Line - but ask the bank to arrange the transfer from your existing provider. Do not take a cheque with you from your existing provider. Under current rules you can lose out if you do. NatWest will not accept transfers into its plan.

If you have used up your cash mini Isa allowance and want easy access to your money, then consider going for telephone or internet-run accounts.

Goldfish Bank remains the best deal for those with internet access. It pays 4.05% (3.24%) on £10,000 with a guarantee that, at least until June, it will move in line with base rate and not cut rates more heavily.

Loyalty rewarded

RETIRED pension administrator Joyce Parker recently took out a two-year fixed-rate Loyalty Bond with Norwich & Peterborough Building Society, available to savers who have been with the society for at least four years. It pays an attractive monthly income rate of 4.12% (worth 3.3% after 20% savings tax) on a minimum £1,000.

Joyce, from Peterborough, whose husband Geoff is a retired train driver, says: 'We rely on the income to supplement our company pensions. Our last two-year bond matured in November, and rates are now much lower, so we suffered a drop in income. We like a fixed rate because we know exactly how much income we will have.'

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