Unfortunately the general trend on all savings account interest is currently downward. The reason for this is that the Treasury announced last autumn that banks could borrow virtually unlimited funds for lending from the Bank of England at just 0.5%, which has meant that they are not so keen on paying us much more than that on our savings.
Whilst the capital with deposit based savings is protected against falls, interest rates are lower than inflation and, in real terms, the value of deposits are falling. Monies should only be kept on deposit for emergency funds and to cover short term needs. Long term monies usually need to be invested in assets that provide the opportunity for capital to at least maintain pace with inflation.
Surprisingly, although it’s due to the government lending at 0.5% which has driven savings rates down, currently government-backed National Savings and Investments (NS&I) have a number products available which are very competitive and may provide a good home for your savings. Another advantage of NS&I products are that they are fully guaranteed by HM Government rather than limited to the £85,000 Depositor Protection Scheme limit as with most other savings banks.
If you are prepared to lock deposits up for a twelve month period or longer, there are a few companies still offering rates of 2% or more. Although, with rates currently so low, there may be little benefit in locking money away into fixed term deposits of more than 2 years at this time.
For a full appraisal of your deposit savings, please contact us.
Rates correct as at 21 May 2013
In the world of investment, timing is everything. However, no matter how much hype we hear to the contrary, it is a fact that no one can predict what the market will do or when. This makes it difficult, not only deciding when to invest but also when to pull your valuable investments out of the market.
This is where the benefits of ‘pound cost averaging’ come into play – or in layman’s terms, regular savings. The theory is that by regularly putting smaller amounts of money into a fund or other investment, the risk of getting your timing wrong is reduced. Compared with investing an entire large lump sum in one go at a single price, the risk is mitigated by the fact your smaller sums will buy in at a variety of prices.
In a rising market, regular savings would underperform the growth of a single lump sum as the later investments would miss out on that rise in the early days. However, in an up-and-down or falling market, the opposite is true. Later investments would buy in at lower or alternating prices – some lower than the original price – and would therefore gain a little more when the market finally did rise.
Similarly, regular saving is a great way to build up a lump sum from zero. A lump sum of £5,000 can seem a tall order for some people. However, putting aside £100 a month from your income is less of an issue – and with investment growth or interest added you can quickly build up a reasonable amount without really noticing. The longer you leave it, the more impressive that growing amount potentially becomes.
Most investment products offer regular savings as an option, including investment funds, ISAs, life assurance and pension plans. If you are considering investing for the first time, this is also an ideal way to start as the small amount you miss every month has less impact on your lifestyle and you will be less sensitive to the short-term ups and downs of markets as falling prices give you the chance to buy the same investment at lower prices.
Many individuals seem to buy their annuity from their pension scheme provider almost by default. However, did you know that by doing so you may be missing out?
Insurers have been fiercely criticised for failing to make it clear individuals can shop around before buying an annuity and are not obliged to stay with the company where they have built up their pension pot. According to the Association of British Insurers (ABI), 45% of new annuities were purchased through a provider other than the consumer’s existing pension provider during 2011. This means that 55% of people remained with their pension plan provider and might have lost out on a better deal.
The ABI has introduced a new ‘Code of conduct on retirement choices’ to help individuals secure the best possible deal for their retirement income. Under the code, insurers now have to write to people approaching retirement to spell out their options. Insurers will have to explain the different ways that retirement income can be taken, including provision for dependants and the possibilities of an enhanced annuity and protection against inflation. Also, insurers are no longer allowed to include their own annuity application forms in their literature – a move designed to increase the likelihood individuals will shop around.
Some 400,000 people buy an annuity every year yet, according to the ABI, one in four do not believe they fully understand their retirement options, while one in three do not feel informed enough to compare quotes from another annuity provider. “Increasing life expectancy means that many people will be receiving a pension for longer than they were paying a mortgage,” commented the ABI. “The need to make the right decisions at retirement has never been more important.”
At Chilvester, we can compare the whole of the market to source the best standard and enhanced annuity rates. If you’d like to talk to us about your retirement options, please contact us for further information.