Why you might want to switch your savings to Nationwide
HSBC, First Direct and M&S regular savers the latest to be hit with rate cuts
Interest rates may be pitiful for savers, but there are a couple of places where you can still get a good rate. Last month, I outlined how you could earn up to 7.5% on your nest egg, but a few of the options I gave have recently become a little less tempting.
Regular savings accounts remain one of the few ways you can still lock in a reasonable interest rate. You can only drip- feed money into the account each month, meaning balances can't get too big and offering a higher interest rate doesn't cost the banks too much.
But now the rate cuts have reached these accounts too. HSBC, its First Direct subsidiary and M&S Bank all cut the interest rates on their regular savings accounts from six per cent to five per cent last week.
Existing customers will be unaffected – you will continue to earn six per cent until your account matures - but anyone looking to start saving will need to think about where they open their account.
All three banks remain top of the tables for regular savings accounts, but to get that five per cent rate you will need to have a current account with them.
If you already have one and can't be bothered to switch, you will still be getting a very good deal if you open a regular saver account.
However, if you are prepared to move, Nationwide's Flexclusive regular saver account is now far more attractive.
It pays five per cent interest, the same as the others, but allows much bigger deposits of up to £500 a month. That means that over a year, you could put aside £6,000 compared to a maximum of £3,000 with HSBC and M&S Bank and £3,600 with First Direct.
As a result, you'd pocket more than £160 in interest, as much as double the amount you'd get with the other three.
Added to that, Nationwide's regular saver is the only one of the table-toppers that allows withdrawals. If you need to access your money from the other regular savers, the account is immediately closed and your interest is sacrificed.
Plus, Nationwide is the only one of the four to pay interest on its current account too. Open a FlexDirect current account and you will get five per cent interest on balances up to £2,500.
You do need to be aware, though, that the interest rate on both the FlexDirect current account and the Flexclusive regular saver drops after 12 months, so you'll need to reconsider your options then.
Finally, if you are going to switch to Nationwide, see if you have a friend or family member who already has a current account with the building society. If they fill out the "refer a friend" form in their online banking, you will both get £100 when you make the switch.
How to earn 7.5% on your savings
It's a miserable time for savers, with already paltry returns on cash savings and rates getting lower and lower. The latest figures from Moneyfacts show that the average long-term fixed rate ISA is paying just 1.15 per cent, down from 1.99 per cent this time last year.
Average savings accounts are paying just over one per cent, but many more are barely paying above zero. If you have cash savings you need to check what rate you are getting and take steps to get the best interest rate possible. Otherwise you risk your nest egg shrinking if real terms if your interest rate doesn’t beat inflation.
The good news is there are several ways you can significantly increase your interest rate. The simplest thing to do is hunt down the accounts paying the highest rates and switch.
In terms of traditional savings accounts the absolute best rate you can get at the moment is 2.01 per cent. That is paid on a five-year fixed rate bond with a £1,000 minimum investment from Vanquis Bank.
It's still pretty pitiful - and if you don'’t want to lock your money away then the best traditional savings rate on offer is 1.2 per cent from RCI Bank.
So, if you want a decent return you have to look away from savings accounts. If you want to keep your money in the bank and have access whenever you want then get a current account, where some rates are far, far better.
If you have less than £2,500 to save then choose Nationwide or TSB. Both pay five per cent interest on their current accounts on balances up to £2,500 and £2,000 respectively.
If you have more than that take a look at Santander's 123 account. It has a monthly fee of £5 but pays monthly interest of 1.5 per cent on balances of up to £20,000 – get in quick and you'll get three per cent interest until November. It also pays cashback on certain bill payments too.
Got less than £500 to tuck away? Get a regular savings account. HSBC, First Direct and M&S Bank have all got regular savings accounts paying six per cent to current account holders. Nationwide also has one paying five per cent. Deposits are limited to around £250 a month (£500 in Nationwide’s case) but the interest rate is brilliant for anyone building a nest egg.
Finally, if you are prepared to take a bit of risk with your cash you could consider peer-to-peer investing. This is where you lend your savings to individuals or businesses in return for a higher rate of interest. At present you could earn up to 7.5 per cent via peer-to-peer.
There is some risk here – your money isn’t covered by the Financial Services Compensation Scheme and there's always a chance the borrower won’t repay. But, most peer-to-peer firms, such as Zopa, Funding Circle and Ratesetter, spread your savings across hundreds of borrowers to reduce your risk.