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Time to take charge of savings
The credit crunch had hardly been heard of five years ago, let alone identified as an impending financial disaster that would change the world and obliterate great swathes of individual, governmental and corporate wealth.
In June 2007, savers and investors could still bask in the warmth of seemingly endless sunshine which, economically-speaking, had shone since the century’s start, blissfully unaware of what was to come.
Five years ago, austerity was a word used to describe post-war Britain. Most people could not spell it — even fewer knew what it meant.
And the penny had not even dropped with political leaders. At the G8 summit held in June 2007 in Rostok, Germany, the assembled great and good discussed climate change rather than possible banking collapse or the comprehensive unravelling of the west’s financial system.
Closer to home, Gordon Brown became Prime Minister after famously declaring that he had put an end to economic boom and bust, while Tony Blair toddled off to make some serious cash.
In the month the London Olympic Games logo was officially revealed (some of us have been examining it for five years now and still have no idea what it is supposed to depict), it was, incredibly, still possible to deposit your savings into a five-year fixed interest account paying 6.37 per cent per annum.
The Halifax Web Saver account proved popular, not least because a deposit of say, £20,000 would earn £1,274 a year, while those with £60,000 to lock away could generate £3,822 every 12 months. They look like figures from a different world, perhaps because they are.
Now, savers who had the foresight to take advantage of such generous rates will come back down to earth with a bump.
Today, the average five year fixed rate has fallen to 3.94 per cent according to the latest figures from financial data company Moneyfacts. Even the best available rate, of 4.5 per cent, represents a drop of more than 29 per cent on the old Halifax account.
With the Bank of England base rate due to be held at 0.5 per cent for the foreseeable future, money markets do not expect UK interest rates to start rising until at least mid-2015 which suggests fixed-rate levels will continue to drift downwards.
Such a depressing outlook means savers should be even more diligent when searching for the best available rates for their hard-earned cash. Furthermore, it would be naïve to believe that when fixed rate deals come to an end, savings are automatically transferred into bank accounts paying the best available rate.
Nothing could be further from reality. In fact, when generous fixed rate deals finish, banks and building societies invariably transfer deposits into holding accounts that can pay as little as 0.05 per cent interest. No, that is not a misprint.
Even worse, some banks transfer deposits into a new account with a fixed term of the same duration as the previous one. Unless savers act within 14 days of the transfer taking place, the money is locked away in the new, lower rate account until it matures.
Such arrangements may persuade folks to deposit newly-maturing savings into an instant access account which, on paper, appear generous, although in truth, they are mostly ‘loss-leaders’ designed to lure savers.
A cursory examination of the small print often reveals rates are attractive only because bonus interest is paid at the end of the first year, after which the rate reverts back to a pitifully low norm.
Clearly, it pays to shop around when depositing lump sums for terms of a year or more.
It also goes without saying that savers who fail to read and understand an account’s terms and conditions have no-one but themselves to blame should the account fail to deliver what they anticipated.
Five years on from the eve of an impending credit crunch, our new financial reality says that unless individuals take responsibility for their savings, there is no point relying on banks to do it for them.