Fixed savings rates given a boost
When you put your money into a savings account, it earns interest. The problem is that the rate at which it earns that interest is at an all-time low.
Yet, even though interest rates remain very low, there are glimmers of hope that may still make savings accounts worth their while, especially those offering a fixed rate of interest (typically in return for less easy, non-instant access to the money you have saved).
The recent performance of fixed rate savings rates
According to figures published by the financial website Money Facts, all of the fixed rate savings accounts it tracks have registered increases in interest rates in the month preceding the 19th of July 2017.
This is the first occasion on which this has happened since April of this year, say Money Facts – and the trend is clearly providing a boost in the popularity of fixed rate savings accounts.
The one-year, fixed bond rate has also seen its strongest performance in the past 11 months, with the rate increasing by 0.7% in the month up to the 19th of July, taking the current rate to 1.07% - the first occasion on which it has been higher than 1% since the previous August.
At the same time, fixed-rate ISAs have also shown impressive gains, with the average one-year, tax-free savings account gaining 0.4% to achieve 0.9%, whilst longer-term savings have posted average rate increases of 0.6% to take them to 1.19% - once again, the strongest returns since last August.
Others confirm the boost
Also confirming this boost to savings rates is the daily updated report by the Money Saving Expert (MSE).
The most recent improvement in fixed savings rates comes on the heels of the government’s decision last April to introduced a personal savings allowance – granting you an allowance of up to £1,000 on earnings from interest on the savings of basic rate (20%) tax payers. Higher rate (40%) tax payers also received a tax-free allowance of £500 on earnings from savings accounts. Additional rate (45%) tax payers received no allowance.
The personal savings allowance is very significant since it takes out the need to pay tax for an estimated 95% of all savers – that is to say, 95% of all savers earn less than £1,000 from interest on their savings.
Additional tax-free earnings may continue to be made on cash ISAs, Premium Bonds and other special savings accounts. Your earnings from interest on these types of savings accounts do not count towards the personal savings allowance – of £1,000 or £500, depending on the rate at which you pay income tax – so these also continue to add to your potential tax-free earnings from interest on your savings.
If you are among the 5% of the population earning more than the personal savings allowance on interest from your savings, you pay tax at your appropriate rate of income tax only on any amount earned over and above the allowance.
Despite the strengthening performance of fixed savings rates and the boost given by recently released figures, it remains true that the cost of borrowing is still invariably higher than the amount you earn from your savings.
It is likely to be advantageous, therefore, first to pay off – or at least pay down – your debts before placing any available funds into a savings account.