The latest findings from Investec Private Bank’s Savings Index3 reveals that despite the Bank of England base rate falling by 0.5% between 27 April 2008 and 1 November 2008, the average rate for savings accounts on balances of £25,000 only fell by 0.28%. Even though the Bank of England base rate has fallen by a further 2.5% since 1 November 2008, Investec’s research suggests that many accounts are maintaining attractive rates. The interest rate on the Investec High 5 Account, which pays the mid-point of the top five savings accounts as chosen by Moneyfacts, is currently 4.80% gross AER, 2.80% above the Bank of England base rate.
The Index reveals that between 27 April 2008 and 1 November 2008, some 58% of savings accounts cut their rates, 2% increased them and 40% left them unchanged. On average, the rate on internet only accounts fell by 0.20% during this period, the lowest fall for any type of savings account. This compares to 0.29% for notice accounts, which was the highest.
However Investec warns that one of the main reasons why the overall cut in rates was less than the fall in the Bank of England base rate was because many accounts are paying such low returns on large balances that they cannot cut them much more because they would be close to paying no interest at all. Indeed, the Index reveals that despite the Bank of England base rate being 4.5% on 1 November 2008 there were 298 accounts paying less than 3% on balances of £25,000, an increase of 287% on 27 October 2007 when there were 77 such accounts. On 1 November 2008 25 accounts were paying less than 1% on balances of
The Index, which tracks the rates on savings accounts for balances of £25,000, reveals that despite the Bank of England base rate being 5% and 4.5% between 27 April 2008 and 1 November 2008, the average rate across all accounts for balances of this size was 3.66%. This is only a little bit more than the average return for balances of £1, which was 3.17%.
Linda McBain, head of Banking, Investec Private Bank, said: “Many accounts were already paying low and uncompetitive returns on balances of more than £25,000 before the recent cuts in the Bank of England base rate, which means that they cannot pass on the full base rate drop. However, there are still a number of accounts paying attractive returns for larger balances and people should be prepared to switch to these if they feel they are not receiving a consistently fair and attractive return. Indeed, our High 5 account is based on the rates paid by the top five best buy accounts4 and its current return is 4.80% gross AER – 2.80% higher than the Bank of England base rate.”
The Investec High 5 Account, which requires a minimum investment of £25,000, pays a market leading rate because each week Moneyfacts take the five highest savings rates in the market, finds their mid-point and sets this as the rate for the High 5. This means that savers don't ever need to worry about finding the best rate, and they have the added assurance that the rate is set independently. Unlike other accounts, it does not rely on bonuses to inflate the rate.
1 The rate is correct as at 17 December 2008 and subject to variation.
2 The Annual Equivalent Rate (AER) is a notional rate, which illustrates the contractual interest rate as if paid and compounded on an annual basis and is subject to variation.
3 Based on data provided by Moneyfacts for Investec Private Bank’s Savings Index which tracks on a quarterly basis interest rates on savings accounts for balances of £25,000.
4 The rate is based on the average of the top 5 savings rates published on the Moneyfacts website www.moneyfacts.co.uk across the categories of no notice accounts, notice accounts, internet accounts, monthly interest accounts, accounts for the over 50’s and accounts with an introductory bonus.