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Hitting savers in the pocket.

Byline: By Wales on Sunday

It's 11 months since the Bank of England last changed base rates - and with interest rates in the UK widely expected to rise later this year, savers should be sitting pretty at this stage in the economic cycle.

In fact, many people relying on interest to meet living costs have taken a hit this year. Tens of thousands of them have seen a big drop in the income - unless they have kept moving cash into better-paying accounts, increasingly available online.

How can banks and building societies justify cuts while the City's key lending rate remains unchanged? Apathy among savers is a big factor.

Says Stuart Glendenning at finance website 'Providers are a bit opportunistic and realise this is a good time to boost profit margins.

'The savings market has ebbed away, rates are a bit soft and most providers might be perfectly happy with the inflows into their coffers which current rates are generating.'

How can savers with four-figure sums to put away stay ahead of the game?

The attraction of notice accounts is less than it was. Today, it might be better to use flexible accounts which allow money to be moved around easily.

Online accounts dominate the league table of better payers, including Sainsbury's Bank Internet Saver (4.75%); Yorkshire BS Internet (4.70%); Halifax Websaver and Coventry Netsaver (both 4.50%).

Says Stuart Glendenning at 'Many people don't want internet-only accounts, so Anglo-Irish Bank paying 4.85% by post, phone and internet on seven-day withdrawals has its attractions.'

Secondly, savers must look closely at bonds - though they tie up money for much longer periods.

'Savers have to ask themselves if they want the extra premium on their money - about 0.75% - by locking away money for up to five years,' says Stuart.

At least pounds 5,000 is required for guaranteed income bonds (GIBs) which, according to Colin Jackson at specialist financial advisor Baronworth, have paid a rising level of income throughout 2006 because life assurance companies use a mixture of assets, including corporate bonds, eurobonds and ordinary deposit accounts to underpin them.

Says Colin: 'With GIBs, the larger the amount invested, the better the rate. Our average investment used to be pounds 20,000-pounds 30,000, but clients are jittery on equities and we regularly see six-figure sums invested now.'

Thirdly, savers can index-link their savings: National Savings & Investments' (NS & I) three and five-year Index-linked certificates pay the headline rate of inflation - currently 3% - plus guaranteed rates of interest on top.

As the eventual repayment is free of income tax and capital gains tax, investors are bound to get a return which outstrips inflation.
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Publication:Wales On Sunday (Cardiff, Wales)
Date:Jul 2, 2006
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