Fix your savings NOW

In October, UK interest rates were 5%. Now at 12pm on Thur 4 December, another huge 1% point cut leaves them slashed to a 2% historic low. This means there's an urgent window of opportunity to fix savings at the pre-rate cut levels, yet you must be prepared to lock your cash away without access to it. Full details plus mortgage & recession briefing below.

Why is this so urgent?

Before the economic downturn hit hard in autumn, the Bank of England used to drop interest rates in 0.25% point increments; bigger cuts were totally unprecedented. Yet in recent months we've seen cuts of 0.5%, 1.5% and 1.0% points, and this means rates for savers are almost certainly going to be slashed. That could happen anytime. Therefore, if you've savings and want to ensure you get a decent rate, it's likely going for a fixed rate deal now will do that.

As banks won't want to expose themselves to paying high rates for long, many of these are likely to be pulled from the marketplace any minute (so when you click a rate below, double check it hasn't gone). If you manage to get in ahead of time, you'll be riding the wave of the old rates and locking in way above expectations.

All base rate updates and new top savings rates go in the free weekly MoneySaving e-mail

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What does a Fixed Rate mean?

Most savings accounts are variable, meaning the rate can change both with the Bank of England's Base Rate and as providers change their competitive stance. It's important to regularly monitor your account's rate and if it plummets, ditch and switch. Yet there are some alternatives to monitoring interest rates:

Fixed rate savings give a guaranteed rate for a set period, but you can't take your money out during that time.

Therefore, they're only suitable for those who are happy to lock cash away for the entire term, meaning you lose the flexibility to ditch and switch to a better payer if the rate is no longer competitive compared to others, or its safety stakes change.

Yet currently, that's balanced out because there are some still relatively high rates available, but probably not for long after the 1% base rate cut. This is because many lenders are desperate to get hold of your cash, so they can lend it out at high rates during the credit crunch. Plus with fixed rates, they get surety they can keep it till a defined time, thus allowing them to plan their lending strategies better.

Of course, there's always the chance base rates will be put up again. Nothing is certain, and thus locking in may not be best in the long run. Yet most economic pundits predict low rates for at least the next year, so it's unlikely.

Will I definitely get this rate?

Apply now and you should get the rate advertised. However, there is always a chance banks that cut the interest on new fixed rate accounts will attempt to shove you onto the new, lower rate. Be very vigilant during the application procedure, and double check the rate before moving cash in (maybe even give them a quick call).

How safe are your savings?

Bank collapse was once easy to dismiss, then the credit crunch and global market turmoil hit. After the calamities hitting Northern Rock, Bradford & Bingley, Icesave and Kaupthing, and that's just in the UK, every sensible saver should ask themselves: “is my money safe?"

The answer is quite simple. Provided your money is in a UK regulated bank or building society account, it's protected under the Financial Services Compensation Scheme (FSCS) and here's the golden rule:

£50,000 per person, per financial institution is guaranteed.

Sadly, this is the simple face of savings safety. The exact rules are more complex, involving how different banks are registered and what counts as a financial institution. Also remember, if you did need to claim compensation, that would likely mean you won't have access to that cash for a few months. For full info read the full Are Your Savings Safe? guide.

How to maximise safety.

The techniques to adopt depend on the amount of cash you want to save.

• Over £50,000. For those with bigger savings, in the unlikely event a bank or building society went bust, don't put more than £50,000 in any one institution; spread it around.
  
  
• Very large amounts. For those with very large amounts of savings (for example, a house sale or inheritance), you may need lots of accounts. Even if you've too much to stick to the £50,000 limit for each, the general rule of not having all your eggs in one basket still works.
  
  
• Less than £50,000. If you've less than £50,000, there's no problem in terms of protection. Yet if you were to have to claim compensation, this takes time, and meanwhile you wouldn't have access to your cash. Thus it's still worth considering spreading money across more than one institution.

For more info see the how to get 100% safety section of the savings safety guide.

This guide and best buys.

It's impossible to know which bank is in trouble. As well as the UK banks, we've seen great names of world banking like Goldman Sachs and Merrill Lynch hit trouble.

Therefore, the only solution for this site is that we'll report the top rates and explain any 'protection oddities'. So far, world governments have reacted to protect their banks, and no savers have lost money, and it's likely (though not certain) this will continue.

The UK's Top Fixed Rate Savings

The most competitive rates tend to be for shorter terms. This also allows you the flexibility that you're not locked in for too long. In the comparison for the rates below, the top instant access accounts currently pay around 5%, yet after the rate cut expect those to drop to 4%.

This section will be checked & updated for changes 3x per weekday.
Always double check the rate yourself before applying.
All major updates go in the free weekly e-mail.

The Top One Year Fixed Rate Deals

Some fixed accounts require you to set up a 'feeder' account, normally a non-fixed savings account, in order to get the money in. If that's the case, it's often speedier to do it at a bank you already have an account with.

• ICICI 5.1% AER, online.
  
  The UK subsidiary of Indian owned bank, ICICI*, is paying 5.1% AER, for balances over £1,000, with no maximum. Some concerns have been raised over its parent bank's stability, and one best buy table has stopped listing it for that reason. Our policy, however, is to include ALL the top rates, but include notes of concerns so you can make your own mind up.
  
  ICICI is a full UK subsidiary and thus in the event the bank went bust, you have the full protection up to the usual £50,000 per person, per financial institution. Even under £50,000, carefully consider whether you want to lock your money into a non-European owned bank in the current climate. If you are considering putting money in, please ensure you read both the foreign banks section of the Are Your Savings Safe? guide and Martin's specific ICICI: How Safe is it? blog.
  
  
• Anglo Irish Bank 4.6% AER. Safety relies on the Irish Government.
  
  Anglo Irish Bank*, pays 4.6% AER on all balances over £500, with a maximum of £2,000,000. and can be operated by post or phone. This, however, is NOT protected by the UK scheme, but the Irish protection scheme, which covers an unlimited amount of savings until 2010. Therefore you are relying on the solidity of Ireland for the protection of your cash. See the foreign banks section of our Savings Safety guide.
  
  
• The best of the rest... up to 4.5%.
  
  The next best is Firstsave's 1 Year Bond, which pays 4.5% if you've over £1,000, up to a maximum of £1,000,000. This is owned by First Bank of Nigeria, but is UK registered so the first £50,000 is covered by the UK's compensation scheme, just like any other bank (read Savings Safety guide). If you'd rather use a UK registered bank, Chelsea BS pays 4.4% AER on balances from £1,000 to £500,000.
  
  
• Use the net to compare top rates
  
  For other lengths of fixed rates, and a full list of fixed rate savings accounts use the MoneySupermarket* and Moneyfacts comparisons, in conjunction with the Savings Safety guide to examine the protection for any accounts. However, with these it's crucial you double check the rates on the banks' own websites before applying, as the comparison tables are NOT continually updated.
  
  

The Top Deals of other lengths

• Six months. Chelsea BS 4.55% AER

  The best rate at this shorter fixed length is 4.55% AER with Chelsea BS's Short Term Winter Fixed Rate Bond at the same rate from £1,000, until 1 June 2009.

• Two years. 5% AER, but go quick!

  If you're willing to lock away for even longer, there's currently a cracking deal. Private bank Close Brothers' Premium Gold account pays 5% AER fixed for 2 years, providing you have at least £10,000 in it. However, you'll need to act urgently, as the deal ends on Tuesday 13 January.
  
  You can make deposits by cheque or BACS, and to ensure you get the 5% rate, Close Brothers must have your cash by 13 Jan. If you are paying by cheque, this simply means that it must have arrived through the post to them by the 13th. If you're using bank transfer, the money must have cleared into the savings account by the same date, meaning you need to transfer it ASAP.
  
  Though this is a private bank, the money is totally covered up to £50,000 by the Financial Services Compensation Scheme, like any other UK registered institution; read the full Savings Safety guide for more info. The maximum you can hold in the account is a hefty £10 million.
  
  Do remember though, fixing for two years means sacrificing access to your cash for a pretty long time, so don't do this if you think there's a chance you'll need it.

• Three or Five Years. Inflation Beating Guarantee

  While the rate isn't fixed, one route for surety of a decent rate is to pick a high paying account that guarantees to match the Retail Price Index, the UK's measure of inflation. NS&I, the government backed, thus totally safe, savings organisation, has 3 and 5 year Index Linked Savings offering to pay 1% more than inflation (this may be slightly less if you leave early). It uses the higher measure, Retail Prices Index (RPI) inflation, at 3%, meaning it pays 4% overall.

  The big bonus is these savings are totally tax-free, meaning it could be a winner for higher-rate taxpayers. Anyone on basic rate tax would have to be earning 5% in a normal savings account to match this, while higher rate taxpayers would need a huge 6.67% to beat it. Also, as NS&I is government backed, it offers 100% safety for your cash.

  However, to get the full rate the cash must be left there for at least three years (although you can break it any time after a year, and get a lower, but not terrible rate), and at least £100 must be deposited (maximum is £15,000 per issue), so it's not for those who want a short term place to save. And if inflation drops, which some economists are predicting, its relative performance could drop too. Yet as it's guaranteed to be higher than inflation and tax free, at least you know your money will always grow quicker than prices will rise.

What about my existing savings?

If you've already got a savings account, what happens following the base rate cut depends on whether it is fixed or variable. If you grabbed a fixed rate account, or do so now, the rate will apply for the set period. However, any other accounts are likely to be variable, and this means the provider can chop the rate whenever it likes.

Following such a huge interest rate cut, savings accounts (including cash ISAs) are very likely to swiftly follow suit. Monitor your rate closely; our Savings Accounts and Cash ISA articles include details on which accounts have already dropped their rates and which haven't. Once you're told about a cut, check to see how competitive your account is, and switch to a better rate if need be.

How this affects mortgages

After last month's 1.5% point cut, most lenders hesitated, and some eventually passed it on to existing customers, but others didn't. However, if they were reluctant last time, the likelihood of them passing on another 1% point has to be questioned. Here's a quick guide as to whether you will gain.

• Fixed Rate Mortgage: No change, as your rate is fixed.
  
  
• Tracker Mortgage: Your rate should drop by 1% points, unless it has a ‘minimum rate' clause, known as a 'collar', which may mean you do not get the full cut.

  Of the large lenders, only Skipton Building Society still has a collar. It kicked in at 3% so its existing tracker mortgage customers will see their rate frozen despite the base rate cut.

  You may have read that Halifax also operated a collar on its trackers but it has now removed it, so its tracker deals will fall in line with base rate. Likewise, Nationwide says it will not enforce its collar which kicked in once base rate fell to 2.75%.

• Discount/Standard Variable Rate: The lender can decide willy-nilly what it'll do. Most will drop the rate somewhat, perhaps by 0.5% points.

As a rule of thumb, per £100,000 of mortgage, a 1% point cut will save you roughly £80 a month, and 0.5% will save £40 a month.

Getting a new mortgage?

If you're in the process of getting a new mortgage, stop! The rate cut news is bound to change the game somewhat, so it's worth holding off a few days to let lenders decide their policies and react to this cut.

More information, and a full PDF guide to mortgages can be found in the site's Mortgage Section.

Recession-proof your finances NOW!

The base rate cut can mean only one thing: the economy is in trouble. The aim of the cut is to boost the economy, stimulate spending and bring rates into line with other countries.

Yet we as individuals must take it as a signal that recession is coming, and we need to protect our finances. This is a three-stage process, entailing learning to think with a recession head on, protecting your pocket, and making the most of every bit of cash you get hold of.

I've written a full, straighforward guide to bolstering your financial defences in preparation for the recession. The earlier you do this, the better, so act now to save paying later! Read the full Recession Proof Your Finances guide