New deals offer respite for savers

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Money news, advice and predictions for savers and spenders.

By Jeremy Gates

Since interest rates began to plunge a year ago, savers have been resigned to the fact that nest eggs built up over many years might generate little useful income this side of 2011.

Barely 15 months ago, in June 2008, savers on three-year fixed deals were getting 7%-plus on deposits.

After six base-rate cuts from October to March, money-market funds with managers such as Fidelity and F&C pay only 0.18%-0.5%. Many savings accounts are in the same ballpark.

At long last, however, savers seeking regular income have got a bit of a break.

National Savings & Investments (NS&I) is launching a new Guaranteed Growth Bond at a market-leading rate of 3.95% gross for its one-year deal.

On growth bonds, interest rolls up until maturity, and NS&I pays 4.25%, 4.40% and 4.6% on two, three and five years respectively.

Income bonds, paying monthly interest, offer 4.15%, 4.30% and 4.5% over two, three and five years. The lower figures are due to the complexities of compound interest.

In both cases, tax is deducted at source, so the bonds cannot be held in an ISA.

The Guaranteed Growth Bond leaves rivals trailing in its wake.

The Post Office, promoting savings products with veteran actor Sir Roger Moore, has such bonds over one, three and five years at 3.70% gross, 4.25% and 4.55% respectively, paying interest on maturity.

The Investec High5 Account, its rate calculated from an average of the top-five paying accounts in Moneyfacts' tables, pays 3.29% on minimum £25,000 deposits. But there's a 90-day notice period on withdrawals, or penalty charge of 0.5% of any emergency withdrawals.

As for Nationwide BS's grandly-titled Champion Saver account, launched in August promising "great value" with a rate decided as the average of the top-five accounts from rivals, the polite thing to say is that it may have taken an early knockout.

It is paying just 2.80% - including a 1.10% bonus vanishing in January 2011.

Andrew Hagger at Moneynet.co.uk says that NS&I appears to have rediscovered an appetite for fixed-rate retail savings after ramping up its offers.

"This product shoots straight to the top of the one-year fixed-rate bond buys, a full 0.20% higher than its nearest rival," he says.

"The two-year rate of 4.25% gross sits just below the top player in the two-year market (AA at 4.35%), while NS&I's longer-term products at three and five years are less competitive."

Many holders of NS&I Premium Bonds, where prizes have shrunk to a trickle despite the introduction of £25 prizes, might switch across to bonds for certainty of income.

Building societies, competing hard to attract savers' money as an alternative to money markets, could see heavy withdrawals.

One big attraction of the NS&I product is the 100% Government guarantee on deposits, whatever economic storms lie ahead.

It also offers easy access - savers need a minimum £500 - and generous withdrawal terms if better rates come along.

Savers wishing to escape from any new NS&I bond inside the agreed timespan will lose only 90 days' interest. Withdrawals on fixed-rate bonds usually face much harsher terms.

For savers locking up money for longer periods, building societies may still have better fixed-rate bonds.

Principality BS pays 5.10% for four years (with a whopping 360 days' loss of interest on early withdrawals!) and Skipton BS promises 5.35% for five years (no withdrawals permitted at all).

But savers who feel a pang of compassion about injuries inflicted on our troops in Afghanistan might also take a look at the Poppy Bond from Coventry BS, paying 4.3% over two years on minimum £500 deposits.

Coventry donates 0.2% of deposits in this account to the Royal British Legion Poppy Appeal, and raised £1.6 million this way in 2008.

Alliance & Leicester has a two-year fixed-rate bond at 4.0% gross on minimum £10,000 deposits.

:: Information: NS&I Guaranteed Growth and Income Bonds must be purchased direct from NS&I on 0500 007 007 (a change may apply on its former enquiries line 0845 964 5000), online at www.nsandi.com, and by post but not through Post Office branches.

NS&I pays 2.50% on its Direct ISA and Cash ISA for over-50s, under the annual allowance raised to £5,100 for over-50s since October 6.

Coventry BS (0845 766 5522 and www.thecoventry.co.uk); Alliance & Leicester (0808 100 3624); Post Office (0800 169 7500 and www.postoffice.co.uk); Investec High 5 (0845 366 6333 and www.investechigh5.co.uk).

Big changes ahead for credit-card providers

Credit-card companies may face a big crackdown under new Government plans, which will be released next year after consultations in the next three months.

Minimum monthly payment levels will increase to at least 5% so that people pay off their debts faster, while companies will no longer be allowed to increase credit limits without telling customers first.

Peter Harrison, credit-card expert at moneysupermarket.com, agrees with the first measure but believes there will be some debate over the latter.

"Our research showed 43% of card users are happy to have their limit increased out of the blue, and some 50% would not be happy, largely because of anger at not being asked first and concern over getting into further debt," he says.

The companies warn that tighter controls could leave 30 million card holders with less choice and higher costs.

Not in the run-up to Christmas, however. Some 3.3 million card applications have been rejected in the past year, so card companies will devising new deals to win customers.

With more customers paying off monthly statements in full, cards which reward spending are back in favour.

The new AA Credit Card, in conjunction with MBNA, is aimed at drivers. It offers reward points on all card purchases with double points on motoring spend, and AA members earn points twice as fast.

Canny motorists might save more by getting cheaper petrol after buying £50 worth of groceries at qualifying supermarkets - and putting the petrol purchase on an AA card.

"With planning, it is possible to ease the pain of increasing pump prices," says AA spokesman Ian Crowder.

The AA card also offers a 0% rate on motoring spend (servicing, tyres, MoTs, repairs, parts) and a 0% rate for 12 months on balance transfers within the first 90 days.

The card has no annual fee, but it charges a typical APR of 16.9% on non-motoring purchases not paid off in full.

Points are redeemable on various motoring products, including AA Insurance, travel books and maps, or they can be exchanged for shopping vouchers and cashback.

"The prospect of earning rewards on purchases seems more popular than ever," Crowder says.

"With collectors saying they would definitely change (31%), or would consider changing (41%) their credit card to one with a better rewards scheme, the AA's new credit card should be popular with a points-collecting public."

Louise Bond at price comparison service uSwitch.com agrees with him.

"The AA card is a great proposition whether you are an AA member or not," she says.

"The fact that users can choose between rewards or cashback is a great feature, and the 0% interest for 12 months is great too, especially as many of the top balance-transfer cards on the market are for those who hold a current account with that bank."

Bond says the right choice of card depends entirely upon a consumer's financial position.

For balance transfers, she likes Virgin Money. But holders of an MBNA card, with a balance to transfer, should look closely at Santander Credit Card.

For purchases, Bond tips Tesco Clubcard Mastercard, which 0% charges for 12 months, while her top card for a standard low rate is Barclaycard Simplicity (6.8%).

For applicants with 'average' credit scores, Bond tips Capital One Progress, which rewards consumers for good behaviour by cutting the rate for purchases and balance transfers every six months by 5%. Purchase and balance-transfer rates starting at 34.9% can fall in 18 months to only 19.9%.

Hagger says consumers with only two or possibly three paydays before Christmas might need plastic to cover shopping bills.

However, tighter lending criteria makes interest-free cards for the introductory period harder to get.

Hagger says a 0% introductory offer for 12 months is attractive on Tesco Bank Clubcard MasterCard, with the same for 10 months on Sainsbury Finance MasterCard and M&S Money MasterCard. Purchase rate after the promotion ends on all three cards is around 16%.

"If you can't get a 0% card, be aware how much extra the celebrations can cost," says Hagger.

"On £1,000 worth of shopping, repayable at £100 per month, you pay £88 interest on an APR of 18.89% and £147 interest on an APR at 30.9%."

A survey of credit-card satisfaction in the November issue of Which? Money gives top scores to John Lewis/Waitrose, followed by Smile, First Direct, Marks & Spencer and Co-op Bank. Nationwide BS fell from second to sixth after imposing new charges on some overseas usage.

Cards with below-average customer satisfaction included Lloyds TSB, Virgin Money, Halifax, Royal Bank of Scotland, MBNA and, in last place in the league, Mint.

:: Information: AA Credit Card applications (0800 171 2036 and www.theAA.com). Applicants must be at least 18, and UK residents (excl Channel Islands and Isle of Man) with credit history clear of county court judgments and bankruptcy.

Poundnotes

:: With most fixed-rate mortgages "too expensive", Ray Boulger at leading brokers John Charcol says variable rate deals account for almost two-thirds of the home-loan market. Purchases account for nearly 58% of the market, with the rest remortgages, while first-time buyers account for just 10.4% of the total market.

"Best fixed and variable rates have got cheaper this month, with real competition emerging in some sectors of the market," says Boulger.

"New products like Northern Rock's five-year fix at 4.99%, up to 70% LTV with a relatively low fee of £595 for purchasers (£995 for remortgagers) plus free valuation and free legals, are helping to drive value back to the fixed-rate market."

Charcol enquiries: 0800 718 191 and www.charcol.co.uk.

:: Loan rates are still rising, despite Bank Rate being still at a record low of 0.5%, says Michelle Slade at Moneyfacts.co.uk.

Following tightening of lending criteria, the last six months has seen £335 added to the cost of the average £25,000 personal loan, says Slade.

That takes the total increased cost for borrowers of a £25,000 personal loan since the crunch began to a staggering £1,804 over the five-year repayment period.

Slade says rates are rising as lenders worry about customers defaulting on repayments, as recession deepens.

:: In the past year, the average age of a child named as second driver on their parents' car insurance policy has shot up from 25 to 31, says research from comparison website uSwitch.com.

As the recession takes its toll on the 'Bank of Mum and Dad', uSwitch says 10 million drivers have a second named driver on their policy and 2.5 million of these are offspring.

While the naming of a child on a parent's policy is legal, says uSwitch, there is no excuse for a fraudulent practice called 'fronting' which occurs when a young person buys and registers a car in their own name and then tells an insurer their parent is the main driver.

The Association of British Insurers says fronting and other forms of fraud have shot up by around 30% since 2007, with the cost of undetected fraudulent general insurance claims now costing £1.9 billion a year, up 24% on the £1.6b recorded in 2007.

:: Savers keen to get income from their portfolio might take a close look at Newton Asian Income Fund, advises Andy Parsons of the Share Centre, which launched its Platinum 120 funds in June 2009 to help identify funds with best long-term prospects and strong management.

"Despite being a relatively new fund, Newton Asian Income already shows considerable promise," says Parsons.

"At the end of November 2008, the fund passed the all-important three-year landmark,

"In the year to date, it has returned an impressive 40.56%, while paying a dividend of nearly 5%."

:: High-five savers:

Phone No Rate Account Period Deposit Interest paid

Skipton BS 0845 717 1777 5.35% (F) Fixed Rate Bond 30/11/14 £500 Yly

Barclays via branch 5.25% Savings Bond 46 Five Year Bond £500 Yly

West Bromwich BS via branch 3.63% Branch Bonus 2 Instant £100 Yly

Citibank www.citibank.co.uk 3.30% Flexible Saver 6 Instant £1 Mly

Investec Bank 0845 366 6333 3.29% High 5 Three Month (P) £25,000 Mly

:: Top-five borrowers

Phone No Rate Period Max% Adv Fee Incentive

HSBC (Rem) 0800 494999 2.99% discounted for two years 75% nil Yes

First Direct (Rem) 0845 610 0100 2.99% variable for term 60% none Yes

ING Direct (UK) 0845 603 8888 3.09% for term 75% £695 Yes

Co-operative Bank 0800 633 5286 3.24% to 31/01/13 75% £995 Yes

The One Account 0845 610 1060 3.75% for term 75% none Yes

Code:

*F - Fixed

*P - Operated by Post

*B - Operated by Post/Telephone

*T - Operated by Telephone

*W - Operated by Internet

*H - Operated by Internet/Telephone

*S - Available only to those aged 50 or over

*R - Available to those aged 60 and over.

:: Source: Money£acts - Tel: 01603 476 476 (All rates subject to change without notice).