Savers urged to guard against higher interest rates

10 April 2012

Savers were advised today to put money into notice accounts so they can cash in on possible interest rate rises.

Consumers must lock their in a fixed rate bond for five years to get the best returns, but while these products offer rates as high as 5%, moneysupermarket.com warned that returns could be hit if interest rates or inflation rose steeply.

However, people hoping to cash in on higher interest rates are unlikely to want to hold their money in instant access accounts, as these are paying average rates of just 0.18%, with a best buy of 2.66%.

Kevin Mountford, head of banking at moneysupermarket.com, suggested savers look at notice accounts. He said the top paying notice account, offered by Secure Trust Bank, is paying 3.25%, the same as a best-buy one-year fixed rate bond.

But while people who take out a one-year fixed rate bond cannot access their money for 12 months, those who opt for the Secure Trust Bank account can make withdrawals if they give 120 days notice, leaving them better placed to make the most of any future interest rate rises.

Mountford said: "Making the most of your money is ultimately a long-term game. The best rate today might not be the best rate tomorrow. With many people expecting a rise in interest rates, locking money away for up to five years may not be a particularly attractive option, but neither are easy access accounts paying well under 3% interest.

"Notice accounts offer a higher rate of interest than easy access accounts, whilst also giving the saver the option to move if more attractive rates become available."

But he also said savers should also bear in mind that, even if interest rates do go up while their money is locked in a fixed rate product, they may have accrued sufficient extra interest in the interim to justify taking out the product.

State Bank of India and ICICI Bank UK are offering the best return on a five-year bond, both at 5% on investments of at least £1,000.

United National Bank has the highest return on a one-year bond at 3.25% as long as at least £2,500 is deposited, while Secure Trust Bank is offering the same rate on its 120-day notice account on deposits of £1,000-plus.