Why savers must act fast to ensure they get the best returns

Another rate cut is expected later this week after warnings that the UK will face a lengthy recession if rates are not significantly lowered. October saw the Bank of England interest rate cut by half a percentage point. This is not the news savers were hoping for, as lower rates will also affect the rate banks will pay savers in interest. This makes it even more important for savers to find the best rates to provide the highest returns. So what steps do savers need to take to ensure the best returns on their money?

Over the last few months rates have been very high which was great for savers. This was due to the shortage of loans provided between banks when confidence was lowered as banks fell into troubles over the credit crunch. This meant that banks needed to focus more on investors, so more competitive rates were offered. Now that interest rates are set to continue falling, savers will need to work at ensuring their money is in the right savings account to avoid it being eroded by inflation.

Although bank rates will fall, lending rates are expected to remain higher as banks are still looking to attract investors. The people that are likely to see the worst effects are savers that have had their money in the same savings accounts for several years as the rates on these accounts are less attractive than those offered to new customers. This is likely to cause some competition between providors, so you may find it wise to move your money if you find you could be getting a better deal elsewhere.

As savers have become increasingly nervous about where to keep their money, some have chosen security over returns, flocking to the providers that guarantee unlimited protection. These banks are some of the few that have cut rates the most, as they know that this will not necessarily cause their customers to withdraw their money to invest with one of their competitors.

Other providers that have significantly cut rates include Firstsave Bank of Nigeria which cut the rate on its easy access account by 1.25 percentage points, while Cheltenham & Gloucester cut rates by an average of 0.56 points, Derbyshire building society announced cuts averaging 0.52 points and Barclays savings rates are today due to fall by an average of 0.51 points.

If your savings account rate falls below or pays less than the bank rate then it is highly recommended that you move your money to a more competitive account.

Remember to spread your money around if you have more than £50,000 invested, as in the event of a bank suffering severe problems, the Financial Services Compensation Scheme (FSCS) guarantees that they will compensate up to this amount for those with a provider that is registered with the Financial Services Authority (FSA). This said, it is important to make sure that any money spread between accounts is with providers from different institutions. For more on this and a table showing all banks registered to the FSA and those that have grouoped registrations see my hub List of banks by institution

The best deals currently on offer

With further interest rate cuts due, now may be a good time to get an account offering a fixed savings rate. Fixed rate bonds offer a rate that will not change over the period specified. However, these accounts generally don't allow access to your money over this period of time and can result in penalties if you withdraw. They also only usually allow customers to deposit a single lump sum investment when the account is first opened. If you are in a position that would suit one of these accounts then act fast as several providers have already begun to reduce fixed rates.

ICICI Bank is currently offering the highest rate with its one-year Hisave Fixed Rate account paying 7.10%. But this rate has recently come down from 7.20%, and is likely to continue falling in coming weeks.

If you require an account that is more flexible allowing you to make withdrawals, the rates will not be as high, but there are still some good deals out there paying around 6%.

The current market-leading flexible savings account is the Alliance & Leicester eSaver Issue 2 with a rate of 6.30%. This account does have some limitations, as it doesn't pay interest on any month in which you make a withdrawal with the exception of July. Another attractive element to this account is that if you have £10,000 or more invested on December 31st you will be automatically entered into a prize draw giving you the chance to win £10,000 in cash, plus get an extra entry for every further £1,000 in your account. However, you must act fast as Alliance and Leicester is still yet to announce its changes to savings accounts so this deal might not be around for much longer.

A more attractive option, could be the Egg Savings Account. It provides a savings rate of 6.55% with unlimited withdrawals.

For all of these deals and more, visit Which4u and start saving now!