The challenge of savings rates

One of the more highlighted features of the financial crisis is that savings rates have plummeted on savings accounts. Anyone who has diligently saved over the past few years now faces being punished by existing low interest rates for savers. However, now that the threat of financial collapse is receding, savers are reportedly worrying less about how safe their money is, as much as getting decent returns on savings. This is especially important because the volume of savings in the UK has actually gone up, even though many current accounts are paying little interest – with some even paying zero interest. However, there are still options for serious savers to get a decent rate of return on savings.

Firstly, there are still a number of UK accounts which will provide a return of around 4-5%, as recently highlighted in the Telegraph, plus ThisIsMoney lists a number of internet-based savings accounts which offer better savings returns. The problem is, many of these set limits in place for issues such as missed payments or withdrawal frequency, offer decent interest only for a limited period, or else have limited bonuses in place to boost the savings rate. The disappointment is compounded by the fact that building societies used to be more competitive on savings rates, but at present they seem more focused on longer-term savings such as cash ISA savings accounts and eBonds.

The second option is to go offshore – which may raise jitters for some after the crash of Icelandic banks at the end of last year. However, offshore accounts are still generally offering better rates than high street banks, even where the bank owns the offshore savings company. This is actually a key point, because in the case of UK-owned offshore banks at least, the savings are guaranteed by the parent bank. In other words, you’re only likely to lose your money if the parent bank goes bust, but as we’ve seen with RBS and HBOS, any large UK bank will be propped up by the government.

There are a number of interesting comparisons worth checking up if considering going offshore – MoneyFacts and Money.co.uk both offer comparison charts. Unfortunately, the best rates being offered again seem to be bonds – in other words, locking up your savings for a specified number of years. At present offshore tracker accounts may offer better savings rates than high street banks, but are still not as competitive as fixed term savings plans. Additionally, do be careful of risk – I noticed that a number of building societies offering particularly good rates, but do be aware that many of these had their ratings downgraded by Moodys. In the event of these building societies or banks going bust, or being nationalised, you may find yourself experiencing a lot of worry as to whether your money is protected or not.

Overall, the picture for savings remains pretty muted as you’d expect, but there are options available for improving the rate of return. The problem is that it mostly involves locking up savings for a fixed term of up to five years, which is not something savers really should have to consider. Additionally, despite the UK government’s presence in the UK banking market via majority stakes in RBS and Lloyds Banking Group, ownership of Northern Rock and Bradford and Bingley, they seem more interested in seeing the banks recapitalise, than provide any kind of real service to consumers. The result is that the tax payer hasn’t simply paid to rescue these banks, we’re also paying to rebuild them.

Filed under: Uncategorized, banking, banks, Savings, uk

Don’t be fooled by “green shoots” in the economy

This spring’s green shoots are being increasing shown to have misplaced optimism, with economic conditions continuing to worsen within the UK – GDP continues to fall, and expectations of a recovery for next year remain muted.

While it’s easy to just look at the UK in isolation, there are a couple of major economic pointers on the horizon that suggest the world’s economy could suffer major set backs – even before a recovery has begun. And this is likely to bode ill for Britain, with existing downbeat expectations potentially proving to be optimistic if these factors play out.

The first is the credit bubble in China. So far, the Chinese economy has continued to grow strong – but it seems that rather than learn from the mistakes of the West, the Chinese are keen to repeat them. Yes, there’s a credit bubble forming in the Chinese economy, as the government there encourages lending to such a degree that the IMF is already alarmed.

The second is the original engine of the credit crunch – the US real estate market. So far it has shown no real recovery, and what’s worse, is that not only are repossessions (foreclosures) continuing to increase, they are not expected to peak until after August 2011, when the last big wave of ARMs – subprime mortgages – come up for renewal past their discount period.

These are not the only negative indicators – the IMF continues to warn that the world economy faces a deflationary spiral, that if borne out, could leave much of the West enduring an economic scenario equivalent to Japan’s lost decades.

The UK has its own problems as well, not least due to the major debt bubble it’s been sitting on for the past few years (it’s not simply about house prices anymore). Lending in the UK is still suffering, with a mass withdrawal from the personal loans market, and such poor lending to business by the banks that Alaister Darling is now having to try and appear to be doing something about it. In the meantime, the IMF is warning that the UK’s credit card debt could be crippling.

Any suggestion of an improving mortgage market should be taken in context of the fact that Spring and summer are traditionally the peak season – and what we’ve seen so far is still weak.

In short, economic conditions in the world remain fragile, but there are no positive indicators at present to suggest we’re past the worst of it – anything but. There are still major dangers on the horizon, which leave little room for optimism for future economic conditions.

Filed under: Uncategorized, Economy, uk

Car insurance consumers don’t get it

One of the lesser reported stories to make the news during this economic crisis is the issue of increasing fraud and avoidance hitting the insurance industry.

While there’s little call to be unduly sympathetic to insurers, it remains a concern to all consumers because policy premiums are simply increased to pay for the costs of fraud, which hits everybody.

In this month alone we’ve seen a couple of different stories come up on this. On the one hand, is the frightening statistic that police are now seizing 460 uninsured vehicles per day. That’s well over 150,000 vehicles per year. And the figure appears to be increasing because some people think they can no longer afford their car insurance, and so drive without any protection. Which is mad when you think of the possible costs and impact on work of having your car towed away.

On the other hand, a general escalation of insurance fraud, not least among car insurance claims. It seems that drivers are either trying not to pay on their insurance, or else trying to play it to pay for other costs.

It’s important to realise that car insurance isn’t a luxury – it’s a necessity, and for protecting the driver’s interests at that.

While most accidents in the UK are not fatal, there are still more than 8 deaths on the road each day. And even seemingly minor injuries such as whiplash are renown for the potential to develop into a more debilitating medical condition.

In either instance of injury or death in a car accident, the insurance isn’t going to heal wounds or resurrect – but at least it can pay for costs, for repairing or replacing the vehicle, paying for extra medical expenses, and many have a built in death policy which can help protect income and inheritance for dependents.

In the meantime, I’m currently running a car insurance policy with Nationwide, but I’m very close to being eligible for the over-50 discounts with Saga. As I’ve iterated before, though, don’t try and save money trying to get the cheapest car insurance, but instead look for one that gives you all the cover you need.

After all, where’s the point of saving a few pounds, if in the event of a claim, it can cost you a lot more in expenses, lost time, and lost income, by having the wrong policy?

Filed under: Uncategorized, car insurance