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Savings rates in recovery. Post Office Online Saver reaches 3.17%

The Post Office Online Saver has rebounded back to the top of the rankings for instant access savings, offering 3.17% with effect from Saturday 26th May.

It’s been predominantly bad news for savers in recent weeks, with Nationwide, AA, and Virgin Money all reducing savings rates. The Post Office has bucked the trend, however, moving ahead of ING Direct (3.10%) and the Derbyshire Building Society (3.06%) in the market for instant access savings accounts.

Nationwide’s Flexclusive ISA, which had set the market alight at 4.25%, was reduced by 0.75 percentage points to 3.5% AER just one month after its launch. The AA withdrew its own 3.5% cash ISA, replacing it with a taxable easy access savings account at a lower rate (and lower still for balances below £10,000).

And Virgin Money, much celebrated for rekindling the no-bonus savings approach, lowered the rates on its Easy Access Saver from 2.85% to 2.60%, making it seem far less competitive than the high bonus offerings that waver on the 3% precipice.

Unlike Nationwide’s 3.17% MySave Online Plus, which requires £25,000 to open and allows only one free withdrawal per year, the Post Office Online Saver requires only £1 to open and allows unlimited free withdrawals. It allows both monthly and annual interest, with the former at 3.12% AER.

Savings and Bonus Rates

The Post Office account carries an initial bonus of 1.52% for the first 12 months, reverting to 1.65% in its second year. Though it is advisable to consider your options at this time to maintain a headline rate, this ‘standard’ rate is as competitive as can be found in the instant-access market.

ING Direct’s weighty 2.6% bonus means that returns on savings drop to just 0.5% after 12 months, while the Derbyshire Building Society account drops to 1% after 12 months.

As we’ve been keen to note in our savings guides and commentary, while ‘standard’ rates are rarely brilliant, some can still be far better than others. At 1.65%, the Post Office Online Saver ensures that returns on savings are more substantial than they would otherwise be with many other providers.

Those looking for an alternative account without bonus rates (see the merits of these here) might consider the Aldermore Easy Access Saver. With a £1,000 opening balance, this account currently returns 2.75% AER, which would become the stronger performing option shortly after other accounts’ bonus rates expire.

The Post Office Online Saver Instant Access Account:

• 3.17% AER for 12 months [Joint-leading Rate].
• Reverts to 1.65% in second year [Competitive].
• Can be opened promptly online for just £1.
• Unlimited withdrawals without penalty.

Apply through Which4U from Saturday and have your new instant access savings account active in just a few minutes.

Mark Hornby

‘Beat My Card’ launch: Save £100s and win an iPad through Which4U

A stunning new ‘Beat My Card’ calculator, exclusive to Which4U, now allows you to find out how much you could save by switching your current credit card to a better one. And better still: you would win an iPad courtesy of Which4U just for trying out the new feature!

The ‘Beat My Card’ credit card savings calculator, available on all the site’s credit card pages (or directly here), provides a comprehensive credit card comparison that accounts for offer periods, monthly spending, monthly payments, and any prospective balance transfers, with just a few clicks of a button.

The quick and easy-to-use ‘Beat My Card’ calculator considers a wide number of variables, using up-to-date credit card specs from our database. Users then receive the details of alternative credit cards that offer the best potential savings (based on a two-year scenario, with interest calculated daily). Check out the example below.

1. Select your existing card.

2. Fill in your spending details.

3. Check out the savings!

Average Credit Card User Could Save Hundreds

It is expected that the average credit card user could easily save hundreds of pounds annually by switching to a better card. And such a sum proves all the more important in these straitened times.

Why not give the new and exclusive 'Beat My Card' feature a try today? It’s quick and straightforward, and not only could you discover a major saving on your credit card, but you could also end up with an iPad through Which4U’s prize draw.

Prize Draw

Everyone who submits a comparison will be entered into a prize draw, which will end on the 1st August 2012, providing 5,000 entries have been received. (The competition will stay open past this date until all 5,000 entries have been received, up to a maximum of 31st Dec 2012.)

There’s nothing to lose, and plenty to gain. See how much you could be saving through ‘Beat My Card’ today!

Keith McDonald
Which4U Editor

Relief to savers as inflation falls to 3%

Consumers received a modicum of good news today as the Consumer Price Index (CPI) measure of inflation fell by a full 0.5 percentage points to 3%.

The cost of living has now fallen to the lowest level since February 2010, the Office of National Statistics said. This will come as some relief to consumers, as the fall shrinks the real losses met by returns on savings accounts.

After the gradual fall in inflation in 2012 had ground to a halt in March, the Bank of England warned that the target rate of inflation might not be reached for at least another year. The Retail Price Index fell only slightly, from 3.6% in March to 3.5% in April.

This marks the first month in many, however, when the Bank’s governor, Sir Mervyn King, has not been required to write to the Chancellor to account for inflation being more than 1 percentage point above the Bank’s target.

Easing pressures in transport, alcohol, and clothing contributed to the fall in inflation. The largest downward effect came from air and sea transport, the report notes. The timing of Easter meant that airfares and sea-fares rose by 7.4% and 4.2% this year compared to 29% and 22% last year respectively.

Clothing and footwear rose by just 0.2% between March and April this year compared by a 1.3% rise last year.

For consumers, this means that the squeeze in the cost of living has abated slightly, while savers can now make gains in real terms from the Cheshire Building Society’s Direct Cash ISA at 3.35%.

Consumers able to lock their funds away for a period might consider investing in fixed-rate bonds. Though one-year bonds currently max at 3.45% AER, the Post Office 2-year bond at 3.63% AER is currently enough to stave off inflation after tax.

See our guide on ISAs and fixed-rate bonds for more details on these products. For more tips on making the most of your savings, check out our recent guide Ten Top Tips!

Ashley King

Single income tax at 30% to avoid decline, says Tax Commission

A report from the 2020 Tax Commission calls for radical simplifications to the UK tax system that would make it "fit for the 21st Century".

It calls for an all-encompassing flat rate of 30% for individuals and businesses alike that would lead to lower avoidance, lower government borrowing, and fewer inefficiencies in a system beset by multiple-taxation problems.

This flat rate of 30% for individuals would be offset by a higher personal allowance of £10,000 and the abolition of National Insurance. Similarly, corporation tax would be simplified to include all distributed income from capital, with Stamp Duty and Inheritance Tax repealed. Altogether, implementing these measures would replace eight taxes with just one.

"The aim is to produce the simplest and fairest, most economically efficient and transparent tax system possible with limited possibilities for avoidance and a dramatic reduction in the double or even triple taxation that plagues the current system", said Chairman of the Commission, Allister Heath.

The commission’s recommendations are designed to create conditions for stronger growth and to amend a ‘dysfunctional’ tax system. "No taxpayer has a realistic prospect of assessing how much they pay", the report states.

The new system, the report argues, would benefit from greater transparency, greater efficiency, fairness (with a two earner household earning around £28,000 standing to benefit by £3,400), and the proportionality that comes with a single-tier system.

Modelling by the Centre for Economics and Business Research (CEBR) suggests that public sector net borrowing would have to rise for the first ten years to accommodate the changes, but that it would begin to fall substantially afterwards owing to a large rise in business investment.

The cumulative impact on GDP through implementing the proposals could be significant, the Centre predicts, reaching close to 2% per year above base expectations by 2015, 5% above by 2020, and 9% by 2027.

The report cites a 2010 report by HMRC which revealed that 20% of UK companies have considered leaving the UK for tax reasons. Without tax reform, the report argues, firms will either continue to leave and take economic activity with them, or stay and be less competitive in world markets, which will continue to suppress their performance.

Taxation affects our behaviour, savings, spending, and innovation. Savings "must be protected against the higher taxation of government", the report says.

It also recommends emulating efficiency-leading countries such as Switzerland by implementing a Local Income Tax, which would comprise a portion of the flat 30%. This, it is thought, would allow councils tighter control over the incidence of their taxes, though savings and investment income would be excluded.

What’s your view on the tax system? Will a proportional system be fairer: if the richest receive a tax cut, but the poorest still receive a sizeable gain? Let us know your opinions!

Keith McDonald
Which4U Editor

Eurozone crisis to further impact mortgage rates

Experts are weighing up the potential ramifications of a Greek exit from the Eurozone, with predictions leaning towards a rise in mortgage rates.

To Michael Cohrs of the Bank of England’s financial policy committee, British banks are strong enough to weather the storm should Greece depart from the single currency.

However, they must continue to bolster their strength ahead of potential knock-on effects, he said. "If it goes further… nobody knows where it will stop or it won't stop".

"Their liquidity is strong and they have enough capital to withstand shocks from Greece", he said of British banks, but added that the unpredictability of the situation had the committee on "alert stations".

Other fund experts are more pessimistic, suggesting that the spread of the contagion to Spain threatens to shatter the stock market. Some fund analysts see a Greek exit precipitating another 10% off the value of British banks and stifling any attempts at an economic recovery.

To Richard Hodges, manager of the Legal & General dynamic bond trust, the crisis will cost the UK its valuable triple-A credit rating by next year..

"The question isn't will the UK be downgraded, but when?" he said.

"As this crisis plays out it is inevitable that they will downgrade the UK, with its huge current account deficit, by 2013 at the latest."

Meanwhile, the strengthening pound means that exports are set to become more expensive, weakening Britain’s global competitiveness at a time when it requires it most. The Bank of England governor, Sir Mervyn King, has suggested taking intervention in foreign exchange markets to cap the value of the pound.

The Eurozone crisis is likely to further impact mortgage rates, the BoE warned last week, as banks seek to insulate themselves from higher funding costs.

"Lenders are under pressure to rebuild their capital buffers and increase their profits", said Brian Murphy of the Mortgage Advice Bureau.

"As their costs of funding rise, they are passing this on to consumers through higher rates."

Consequently, consumers are advised to press ahead and secure their mortgages before rates make their inevitable rise in the near future.

Bret Clement

Santander in trouble? The FSCS secures your savings

MPs have been complaining this week that not enough is being done to spread the word about the Financial Services Compensation Scheme, which guarantees savers’ deposits for up to £85,000 across registered banks and building societies.

At Which4U, we’ve got an existing savings guide on Secure Savings and Compensation, and an editorial that addressed the merits of the expensive advertising campaign that failed to reach a big enough audience. Moreover, we've combined the two together in a new article on our Finance Blog.

The subject has become more topical than expected. Yesterday, 16 Spanish banks were downgraded by credit ratings agency Moody’s. The fourth largest of these, Bankia, was bailed out by the Spanish government in a move that part-nationalised the bank.

The effects have been felt on the UK high street. With Banco Santander having to set aside almost €3 billion to cover asset losses, subsidiary Santander UK also found its rating cut to down to A2. This regards the bank’s ability to repay short-term debt obligations as ‘strong’ rather than ‘superior’.

And two days ago, Kent County Council decided to suspend its use of the bank for overnight deposits, concerned that the UK bank was not sufficiently insulated from the troubled Spanish bank. Kent Council's caution stemmed from losses of £50 million incurred when Icelandic banks collapsed in 2008. It has since reinstated its confidence in Santander.

However, this does not need to influence savers’ decision-making. The FSCS ensures that savers are guaranteed protection for the first £85,000 of their deposits, per person, per institution.

The sticky issue here, of course, is the term ‘institution’, which becomes more complicated where banks and building societies share registrations. In such cases, the £85,000 guaranteed compensation limit covers deposits across all of the banks that hold a single registration, rather than each one individually.

New graphics on the Which4U savings account page (replacing the old gaudy HexColour effort) help to identify, by row and by colour, those banks and building societies which share a registration.

Banks that share FSCS registrations form a single 'institution'. Be sure not to deposit more than £85,000 in any one of these groups. See the full table here.

The bottom line is: there is no immediate reason for savers to panic at the safety of their deposits. The FSCS ensures that savers are protected for at least £85,000, should the worst occur.

Mark Hornby and Kate Guthrie

Eurozone "tearing itself apart" says Bank of England

The Bank of England has downgraded its forecast for UK growth in 2012, with Governor Sir Mervyn King describing the Eurozone as ‘tearing itself apart’. The Bank also warned of higher inflation and higher mortgage rates.

The Bank cut its 2012 growth forecast from 1.2% to 0.8% in its quarterly Inflation Report, citing the Eurozone 'storm' as the main hindrance. Sir Mervyn King said that the UK could not expect to escape ‘unscathed’ from a Eurozone that was ‘tearing itself apart’.

As a consequence, inflation will fall much more slowly than initially predicted and remain above the 2% target for at least another year, the Bank’s Monetary Policy Committee said. The inflation rate at the end of the two-year prediction period was revised to 1.6%.

And homeowners should expect sharp increases in their mortgage payments, the Bank said, irrespective of its own interest rate decisions. The sovereign debt crisis continues to increase the cost of borrowing for UK lenders, who recoup these margins by passing on the cost back to consumers.

The immediate worry is that many will find the impending increase in costs too much to handle at a time when the economy is already performing poorly.

Prime Minister David Cameron has already insisted that he would do whatever it takes to "keep Britain safe", as the on-going constitutional turmoil in Greece makes the threat of a collapse ever more pressing.

In these troubling times, Which4U endeavours to keep listing the best products available, and to help you ensure that you make the most of your money.

Ashley King

Mortgage lending rose ahead of stamp duty holiday end

There was a considerable rise in mortgage lending in March as the stamp duty holiday ended, reports the Council of Mortgage Lenders.

The CML said that the number of new mortgage loans granted to buyers rose by 44% from February, to 51,200, which was also 31% higher than in March last year.

First-time buyers, the main beneficiary of the stamp-duty holiday, rushed to exploit the final month of the stamp duty holiday, as the number of new mortgage loans rose by almost 75% from February, to 24,000.

This is a more optimistic picture of the market than that issued by the Bank of England earlier this month, which found only a slight increase on February and a fall on January.

Buy-to-let lending, however, continues to be resilient in the face of the fluctuating market.

The CML’s prediction that the rise was certain to be a one-off event appears to have already been fulfilled.

"If lending follows the same pattern as after previous stamp duty concessions, we will likely see a drop in activity in the next few months", said CML Director General, Paul Smee.

And the Royal Institute of Chartered Surveyors has already decreed that house sales fell in April for the first time since last September.

The stagnant market is unlikely to be helped by the withdrawal of competitive mortgages and an increase in variable mortgage rates by major lenders.

"It will take some time before we can judge whether other initiatives such as the NewBuy scheme and the reinvigorated right to buy will compensate for this effect", Mr Smee added.

Bret Clement

Eurozone may falter as Greece's constitutional crisis continues

Leaders admitted yesterday that Greece could be forced to quit the euro, causing markets across Europe to plunge.

On-going talks to form a coalition in Greece have repeatedly faltered, as left-wing parties oppose the austerity measures and bail-out terms demanded by Berlin and Brussels.

Angela Merkel said that European support for Greece would have to end if a resolution could not be found.

A Greek exit could plunge the single currency into crisis, as stronger economies will face huge pressure from their people to stop injecting taxpayers' money towards the ailing economies. Italy and Spain have already benefitted from trillions of euros in low-cost loans provided by the European Central Bank.

And European markets saw billions of pounds wiped from the value of shares as the crisis deepened, with many now seeing the demise of Greece as inevitable. Losses were also experienced in the US and Asia as the global economy at large watches on nervously at the plight of the ailing Eurozone.

The German finance ministry is keen to raise a new emergency fund in the event of a Greek exit, it has been revealed, though there is some astonishment at the prospect that the costs must be shared among all 27 EU members, including non-Eurozone countries.

A spokesman for David Cameron said that eurozone countries alone should be supporting the eurozone.

The events have had a decisive impact on borrowing costs. British borrowing costs have fallen as investors turn towards UK gilts as a safe-haven, while German bond yields also fell. Spanish and Italian borrowing costs have increased, however, as the ensuing crisis stresses the disparity between creditworthiness across EU nations.

In the longer term, however, UK borrowing costs could be forced upwards, despite austerity measures, if growth fails to inspire confidence in the markets. This would have severe knock-on effects for mortgages and savings at a time when the Bank of England are already having to rein in their expansionary monetary policy activity.

Chancellor George Osborne said that speculation about Greece is not in the best interests of the UK or Europe.

"It's the open speculation from some members in the eurozone about the future of some countries in the eurozone which I think is doing real damage", he said.

"The British recovery has been damaged over the last two years by uncertainty in the euro and that uncertainty would be magnified were a country to leave. It is that uncertainty and not austerity that is doing real damage to the European recovery and indeed the British recovery."

Keith McDonald
Which4U Editor

Millions facing higher mortgage payments

Millions of mortgage customers across the UK are facing higher mortgage repayments after lenders hiked interest rates, citing the rising cost of wholesale funding.

Halifax, Britain's biggest mortgage provider, raised some of its fixed-rate deals for new customers up to 6.29%, while Yorkshire Building Society also raised its five-year fixed rate mortgage by 0.3 percentage points from to 4.1% - both of which add roughly £300 a year to a £150,000 mortgage.

Other lenders have also increased their rates for new borrowers this month. HSBC has withdrawn one of its cheapest variable tracker rate deals, while raising a whole host of other variable tracker and fixed-rate mortgage deals by 0.2 percentage points.

Mortgages and Margins

Homeowners may take some consolation from intimations today that the central interest rate is set to remain low in the long term.

Though the current increases are independent of the base rate, there is no immediate pretext for banks to hike costs up further.

To IHS Global Insight economist Howard Archer, the move to hike interest rates shows that banks are "desperately trying to protect their profit margins".

The move comes as George Osborne contemplatives a prospective agreement on the Basel III agreement of banking capital.

Prices and Portfolios

Lenders are also moving to cut the value of properties by almost 20%, as concerns grow that the housing market is looking anaemic.

This may further encourage buy-to-let investors to expand their portfolios, as they continue to cash in on a thriving rental market while many cannot afford to buy.

Reports last week showed that buy-to-let mortgage lending had increased by almost a third on the first quarter of 2011.

Are you looking for a better mortgage deal? See what Which4U is listing at the moment!

Bret Clement