Quick-fix solution for savers

By DAILY MAIL REPORTER
Updated: 19:00 EST, 17 September 2002

SAVERS desperate to protect the value of their hard-earned cash from falling interest rates are snapping up all the best fixed rates on the market.

But the top deals are being pulled on an almost daily basis and replaced by lower fixed rates.

Nationwide, for instance, recently withdrew a two-year bond paying 4.25% and replaced it with one offering 4%. But you can do better than this.

The top fixed rate bonds over two years are offering 4.5%, though these, too, are likely to vanish soon.

So is this a good time to fix your savings rates? The possibility of an economic slowdown and low inflation means that there's a strong possibility that the variable savings rates paid on most accounts will fall further.

Locking into a fixed rate means that this uncertainty disappears. Fixed rates are offered by banks and building societies as bonds running for a fixed period. If you try to get out early you will lose money, so you must be prepared to keep your money in for the full fixed-rate period.

But how long you lock in for must be determined by what you think will happen to interest rates in the future.

Colin Jackson, of independent financial adviser Baronworth, says: 'We are currently recommending fixing for two to three years. I would not recommend for fixing for longer than this because while rates may fall over the next few months - and even if they go up it will be by only a small amount - no one knows what will happen to long-term rates.'

The best one-year fixed rate currently on offer is Safeway Bank's rate of 4.5% gross (3.6% net) on £2,000. Cheshire Building Society is offering 4.4% (3.52%) on £5,000 for a year.

In comparison, the top variable savings account currently available - Coventry Building Society's NetSave Instant - offers

4.4% on £500. Although the rate on this account is variable it, does have a guarantee to pay at least base rate until August 31 next year.

If you want certainty for two years, the best rate is currently 4.55% (3.6% net) with Kent Reliance Building Society or 4.5% (3.6%) with Abbey National.

For three years, the best rates include Standard Life Bank's 4.75% (3.8%) and West Bromwich's 4.75% (3.8%). Woolwich pulled its three-year rate of 4.8% recently and replaced it with a rate of 4.5%. Also worth considering are Northern Rock's two-year deal at 4.4% gross (3.52% net) or 4.1% (3.28%) for monthly income. Over three years it pays 4.65% (3.72%) or 4.35 (3.48% net).

There are also some excellent deals on guaranteed income bonds issued by insurance companies, which are only suitable for taxpayers because the income is paid after basic rate tax has been deducted and it cannot be reclaimed.

It is best to buy these via an independent financial adviser such as Baronworth or Chartwell which will use some of the commission paid by the insurance company to boost the interest paid to you.

Baronworth's best is a threeyear fixed rate at 4.25% after basic rate tax on £30,000 with Swiss Life. Its top two-year is 3.83% net on £50,000.

Although both these bonds are selling well - and taking some sizeable deposits - Mr Jackson says that neither is likely to sell out in the next few days.