Finance Matters

Posts Tagged ‘Banking News’

The Post Office has strengthened its range of savings products with a reward saver account offering 3 per cent interest and a notice period of only 30 days.

If savers make a withdrawal without giving 30 days notice, they will lose 30 days interest on the amount withdrawn.

The interest rate includes a 1.25% bonus for the first year.

Like all Post Office products the account is covered by a ‘savings promise’, which means that any Bank of England base rate changes until January 2013, will be mirrored by the interest on the account.

Customers can access the reward saver account at Post Office branches, by phone or by post.

Post Office Director of Savings and Investments, Richard Norman, said: “The new issue of the Post Office Reward Saver account further demonstrates our dedication to branch savers.

“The best buy rate will help more people make their money work harder for them.”

The account reflects an increasingly competitive savings market.

The latest survey by Moneysupermarket.com suggests that average savings rates for easy access accounts have increased by 0.23 per cent to 2.97 per cent in the last year.

The figures are based on the average interest rate paid by the top five easy access accounts.

ISA rates have also increased, with the average rates paid by a one year fixed rate ISA now 3.17 per cent compared with 2.99 per cent in 2011.

Bonds have followed a similar trend with the average top five rates for one year and two year fixed rate bonds based on £10,000 increasing by 0.46 per cent.

Meanwhile, mortgage and loan rates have fallen over the past year.

Kevin Mountford, head of banking at Moneysupermarket.com , said: “Savers have suffered from a low base rate environment for almost three years so it’s encouraging to see banks and building societies increasing competition to attract savers, offering attractive headline rates compared with a year ago.”

Credit unions which have previously had to restrict their services to a common group of members, such as residents of certain geographical area, will be able to expand under new legislation.

While they were only allowed to offer services to individuals, changes to the Credit Unions Act means that they are now allowed to provide services to businesses and community organisations.

They can also pay interest on deposits, instead of a dividend, which will make it much easier for consumers to compare their savings products with other providers’ products.

The changes will allow Credit Unions to expand and compete with high street banks and other savings providers, increasing competition on the high street.

The 450 credit unions in Britain are owned and controlled by their members and are run by volunteers.

They have no shareholders and any profits are used to develop the credit union and provide a return to savers.

This model means that they are well-placed to provide fair and affordable financial services with the advantage that money invested remains within the local economy.

Credit Unions are covered up to £85,000 by the Financial Services Compensation Scheme.

Mark Lyonette, chief executive of the Association of British Credit Unions (Abcul), said: ‘These changes are a major breakthrough in the delivery of credit union services to communities around Britain.

“The new rules mean credit unions can now compete more effectively with banks and other lenders to provide fair and affordable financial services.”

There are 40,258 credit unions in 79 countries worldwide.

Together, they offer affordable financial services to 118 million members.

The latest Credit Union to open its doors in the UK is the First Choice Credit Union which opens on 13 January at the Ribble Valley Citizens Advice Bureau in Clitheroe, Lancashire.

Virgin Money, the new owner of Northern Rock, is to begin charging all new customers for current accounts, even if the account remains in credit.

Virgin Money’s chief executive Jayne-Anne Gadhia “Most people know there is no such thing as free banking.

“Banks have to cover the cost of free current accounts with hidden charges such as overdraft fees.”

Her comment echoes the views of Andrew Bailey, Director of Banking at the Financial Services Authority, who said last month that free-if-in-credit current accounts led to higher charges being levied on other products.

Virgin Money will charge new customers around £5 per month for a current account, amounting to £60 per year and there is concern that other banks could follow suit.

Around 80 per cent of the 50 million current accounts in the UK are free-if-in-credit accounts and Virgin Money’s move has been criticised by consumer groups for putting further pressure on already stretched household incomes.

To soften the blow, Virgin Money will offer discounts on services such as health clubs to fee-paying current account customers.

Virgin Money has also strengthened its savings range with an instant access account and Isa offering 2.85% interest.

The bank says the new Virgin Easy Saver and Virgin Easy Access Cash Isa are simple, fair and transparent.

The 2.85% interest rate is not reliant on bonuses, so returns will not plummet after 12 months as they do with many savings products and both accounts allow customers to make as many withdrawals as they wish without incurring a penalty.

The Isa allows transfers in of cash Isa savings held at other providers.

Both the Easy Saver and the Easy Access Cash Isa are available in Northern Rock branches, online, by post and over the telephone.

Research by comparison site Moneyfacts has found that there is not one single savings account currently available that will completely protect taxpayers’ savings from the effects of tax and inflation.

The latest figures show that inflation fell slightly in November, from 5.0 per cent to 4.8 per cent, on the Consumer Prices Index.

This means that basic rate taxpayers would need to put their savings in an account paying at least 6.00 per cent in order to stop them being eroded by inflation.

A taxpayer paying the higher 40 per cent tax rate, would need to put their savings in an account paying at least 8 per cent in order to inflation-proof their hard-earned cash.

Moneyfacts also highlighted that instant-access savings account pay an average of just 0.93% interest.

Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said: “Over the last year the number of savings accounts that beat inflation for basic rate taxpayers has dropped successively from 57 to absolutely none, which must leave savers wondering why they save at all.”

Bonds tend to offer a better return on savings than instant access accounts, although even these do not negate the effect of inflation and they mean that the investment is tied up for a year or more.

The latest bond from Kent Reliance offers a 3.66 per cent interest rate for savers who don’t mind tying up their money for one year.

However the Limited edition one year fixed rate bond is only for savers with a savings pot of at least £50,000!

If you don’t mind locking your savings away for two-years, the Bank of Ireland, the Halifax and Vanquis bank all offer bonds with interest between 3.85 per cent and 3.9 per cent and there are a number of three year bonds offering over 4 per cent.

The Financial Services Authority (FSA) is introducing new rules which will require banks and building societies to display clear signs at branches and on their websites, telling customers their savings are protected.

The sign will tell savers: “Your deposits are protected up to £85,000 by the Financial Services Compensation Scheme, the UK deposit protection scheme. Any deposits you hold above this amount are not covered.”

The Financial Services Compensation Scheme (FSCS) is an independent scheme established on 1 December 20011 as a compensation fund of last resort for customers of authorised financial services firms in the UK.

It will compensate customers if a bank, building society or financial firm stops trading or has been declared in default and is unable to pay claims against it.

The new rules are designed to improve consumer confidence in the safety of their savings and to raise the profile of the scheme.

Despite a £4m publicity campaign last year, many customers remain unaware of the protection available.

Hector Sants, chief executive of the FSA, said: “The posters and website notices we are going to be mandating will help to prompt consumers to get more information and to make informed decisions about how much money to deposit with one bank.”

Banks which operate in the UK but which are headquartered abroad will have to display signs stating that deposits are not covered by the FSCS and offering information on which other national scheme is providing the protection.

The FSCS has paid out £26 billion in compensation, it was revealed today, representing an average payment of £1,448 for each family in the UK.

The FSCS advises that savers should check their savings are with Financial Services Authority-authorised institution, or they may not be eligible for FSCS protection.