The Salary Calculator

Navigating saving accounts in 2023

by Madaline Dunn

Interest rates are going up again, with the Bank of England (BoE) taking its base interest rate to the highest level in more than a decade; this is the twelfth time it’s been hiked. While this means higher mortgage rates and borrowing costs, it should be good for savers, however, UK banks are being accused of short-changing customers.

This week at The Salary Calculator, we’ll walk through how to navigate savings accounts amid the hullabaloo and cover the following:

• Where can savers get better returns?
• Can savers get better returns?
• Should you lock your money in a savings account?
• Is it time to go flexible?

What’s going on with interest rates?

Back in February, the chief executives of the four biggest banks in the UK – Lloyds, NatWest, HSBC and Barclays – came before the Treasury Committee to discuss their low rates. Harriett Baldwin, who chairs the committee, concluded that the nation’s biggest banks need to “up their game and encourage saving.”

Baldwin noted that while other products are available to those who hunt, these banks are offering “measly easy access rates” and further noted that loyal customers are being squeezed to “bolster bank profit margins.” Elderly and vulnerable customers who rely on High Street bank branches were identified as those most vulnerable to what she called the “loyalty penalty.”

Indeed, Which? recently published data from its analysis of three years’ worth of savings rates and found that despite the base rate rising, many high street banks are still offering less than 1% on instant-access accounts.

Indeed, the City watchdog, the Financial Conduct Authority, recently warned banks that it would consider taking “onerous intervention” if savers don’t start to benefit from interest rates.

Can savers get better returns?

According to MoneySavingExpert, anyone with a savings account should not be earning less than 3% interest “at the very minimum.” And, when it comes to rates, Saffron’s new product has been deemed market-leading, offering a fixed 9% interest rate.

However, while this is a great deal, it’s only available to those who have been with the bank for a year or more – ruling out a lot of people. Similarly, Skipton building society is not far behind with its rate of 7.5%. But, again, this deal is only up for grabs to those who joined before May 31st, and allows customers to save up to £3000 a year.

Plus, while these regular savings accounts look attractive, it’s important to note that not all that glitters is gold; there will be restrictions on how much you can pay in, plus, the headline rate is only paid on the first month. After this, you’ll typically end up with just over half the advertised rate.

Should you lock your money in a savings account?

When criticised by the Treasury Committee over easy access rates, Nationwide BS and Virgin Money said the reason banks are more comfortable with higher rates for fixed-term products is that they provide more “certainty and stability.” This is, of course, the attraction of fixed-term rates, you can get more bang for your buck, so to say. Indeed, fixed-term rates are now almost double what they were this time last year. This explains why savers invested nearly £40bn into fixed-term savings accounts in the first quarter of 2023. Plus, by preventing you from accessing your money, you won’t be tempted to dip in.

Some of the best rates right now – at the time of writing – include Tandem Bank’s 5.35% rate, paid over a five-year term, accessible with just £1; National Bank of Egypt, meanwhile, offers 5.25% if you lock up your money for a year, however while you’ll have access to your money sooner, you’ll need to save a minimum of £10,000.

With a global recession looming, however, some suggest that, for the short-term at least, fixed-term deals could be more secure, especially if you’re saving for something in particular that requires a deposit or the like.

Of course, you’ll need to weigh up some of the disadvantages of being locked in. Alongside not having access to your money for a set period of time, when better deals crop up, you won’t be able to switch and make the most of them.

Is it time to go flexible?

Flexible rates have the advantage of letting you take out money when you want to, but you will pay for this benefit with lower rates. Plus, rates are variable, which means that they can either go up or down.

Right now, the top two rates on the market are delivered by West Brom Building Society and Principality Building Society, offering 4% and 3.88%, respectively. However, both only allow two withdrawals a year, so while technically flexible, they are more restrictive than, say, Secure Trust Bank, which offers 3.85% and unlimited withdrawals. Tesco Bank, meanwhile, offers 3.45% with a bonus of 2.45% for 12 months.

Ultimately, your decision should be informed by your circumstances, and you should think about whether you’ll need more flexibility in terms of access.

In an article for The Guardian, a UK Finance spokesperson said that the instant rate market is more competitive, “with a range of fixed and variable rate products available and encouraged customers to shop around for the product and interest rate.”

Tags: banking, inflation, interest rates, saving account, savings

A guide from inflation to stagflation

by Madaline Dunn

The world of economics can sometimes appear inaccessible and confusing; that said, some particular terms are important to understand. Inflation, deflation, hyperinflation and stagflation all affect the cost of living, impacting the price of food, transport and electricity, as well as savings accounts and investments.

At The Salary Calculator, we’ll walk you through:

• What inflation and deflation mean
• What stagflation means
• Examples of hyperinflation through the ages
• How to guard yourself against the impacts of inflation

What are inflation and deflation?

Inflation can be defined as the rate at which prices rise and generally applies to goods and services. It can increase depending on various factors, including an increase in production cost or a surge in demand for a product. Each month the Office of National Statistics (ONS) releases its measure of inflation through the Consumer Price Index (CPI).

An example of how inflation works is as follows: If an avocado costs £1 initially and the following year its price increases to £1.03, this means inflation has increased its price by 3%.

Britain’s inflation rate recently jumped to 2.5%, up from 2.1% in June 2021, which is the highest in nearly three years. Unfortunately, the Bank of England expects that it could reach 3% by the end of the year.

Deflation, meanwhile, refers to when the rate of inflation becomes negative. While this may appear to be a good thing, in the world of economics, it’s usually considered to be problematic. Common causes of deflation include:

• Technological advancements
• Lower production costs
• Decreased confidence in the economy
• An increase in unemployment

What is stagflation?

This term is pretty self-explanatory and refers to an economic situation whereby levels of unemployment are high, economic growth stagnates, and interest rates are also high. The UK was hit hard by stagflation back in the 1970s, caused in part by the OPEC oil crisis. That said, it is a rare occurrence economically.

Hyperinflation through the ages

While inflation can significantly impact the economy and make life a lot more expensive, hyperinflation takes this to the next level. It occurs when prices rise at a rate over 50% a month.

While also rare, hyperinflation has occurred numerous times throughout history. The worst example of hyperinflation occurred in Hungary in 1946, where prices doubled every 15.6 hours. Meanwhile, hyperinflation in Weimar Germany reached rates of over 30,000% per month. Elsewhere, in January 1994, Yugoslavia’s inflation reached 313 million percent. During this time, prices doubled every 34 hours!

Guarding yourself against inflation

Understandably, talk about inflation can prick people’s ears and cause concern. However, there are methods that you can use to protect yourself against the effects of inflation.

When faced with inflation, it’s a good idea to use the savings you have to reduce your debt, whether that’s credit card debt or an overdraft. Of course, you shouldn’t deplete all of your savings in this way; it’s always wise to have an emergency fund.

That being said, if you notice you have an excess of savings, it can be beneficial to invest a portion of your surplus. Here, investment in equities is a good move.

Equally, ensuring that you maximise your tax efficiency is an effective way to guard yourself against inflation. ISAs are great here and allow you to save and grow investments free of tax.

Tags: Deflation, economics, Economy, Hyperinflation, inflation, savings

Rocky road to financial recovery

by Admin

Although the UK entered recession as long ago as the second half of 2008 and officially exited recession at the end of 2009, a full recovery still seems a long way off. This week was one of mixed messages – some good and some bad.

First came the bad news that the Consumer Price Index (CPI) had increased from 4% to 4.5% in April. The CPI is used to measure inflation in the UK and to compare it with the government’s target of 2%. A low level of inflation (like 2%) is a sign of a healthy economy, but higher rates usually mean that the costs of goods and services are increasing faster than workers’ wages, leading to a lower standard of living. For those of us already finding it hard to make ends meet, this is obviously bad news.

On the flip side, however, there was news that unemployment fell in the first quarter of this year. The decrease was only slight, to 7.7% from 7.8% the previous quarter, but it is a promising sign – as is the fact that the number of people in employment has increased to 29.24 million, just short of the pre-recession peak of 29.57 million.

What does all of this mean? Well unfortunately, these numbers are just a small part of the complex system that makes up the British economy and predicting what will happen next is astonishingly difficult – as no doubt you’ve noticed in the past few years. However, it seems that the economy is continuing on its long, slow recovery from the greatest recession in living memory. The recovery appears to be fragile – which is one of the reasons that the Bank of England has left its base rate at 0.5% for the 26th month in a row. You know what they say – slow and steady wins the race!

Tags: careers, Economy, inflation, recession, recovery, unemployment