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

Saving rates 

by Madaline Dunn

With so much chaos in the economic landscape, the pound yo-yoing, and the cost of living at its highest point for years, if you’ve managed to squirrel away some savings, it makes sense that you’d want to ensure that you’re getting the most out of your account.

Although the rising interest rates are unwelcome for many, for savers, after historically low-interest rates, it’s not all bad news; but savers need to watch out for the best deals.

In this article, we’ll walk you through the following:

• What saving is looking like during the cost of living crisis
• The saving rates rise
• Some of the best deals out there right now

Saving during the cost of living crisis

During the cost of living crisis a significant number of people have stopped paying into a savings account. According to a recent survey conducted by the Building Societies Association (BSA), 35% of those polled have stopped saving due to the rising cost of living, with 36% now relying on their savings to pay for day-to-day costs. Moreover, before the crisis, around one in 10 UK residents had no savings at all. However, millions of pounds are still in savings accounts and if you’re keeping your head above water and managing to save, you’ll likely be looking for the right account for you to secure the best deals.

Saving accounts come in a few different forms and typically are not subject to tax until you reach a certain threshold, this is called the personal savings allowance (PSA) and is dependent on what rate of income tax you pay. Basic rate taxpayers can earn £1,000 in interest each year without having to pay tax on that interest, for higher rate taxpayers this drops to £500. A basic rate tax payer who earned £1,200 in interest in would therefore only pay tax on the £200 above their PSA, which at 20% would be just £40 of tax on £1,200 of interest.

ISAs are comparable to a regular savings account, but whatever interest you earn remains entirely tax-free. However, ISAs tend to pay a lower rate of interest. For those looking for flexibility, an easy-access savings account can be a good option, as it allows you to dip into your savings at short notice without receiving penalties; likewise, the amount of money required to open an easy savings account is usually lower than other savings accounts. Fixed-rate savings accounts or bonds, on the other hand, while less flexible, offer you a guaranteed interest rate over a set period of time and typically offer higher interest rates.

A current account can be used as a savings account, although some basic accounts don’t offer interest on your balance. When looking into using a current account as a savings account, consider the interest rates and account requirements, as some will require you to pay a certain amount of money each month. Some current accounts can see interest rates exceed 5%, but this is often subject to a maximum sum you can save before it drops again.

Saving rates reach highest levels in over a decade

Savings rates in recent months have reached their highest levels in more than a decade. However, as Anna Bowes of independent comparison service Savings Champion says, things are changing so quickly, and she warned a week ago that people were “in danger of missing the peak.” Equally, research from BSA shows that many people aren’t sure what they’re getting with a savings account in the first place, with 31% of those with savings accounts never even checking their savings account interest rate.

Recent research on savings rates found that the average easy-access rates have risen from 0.25 to 1.05%, while since March, the average one-year deal has risen from 0.92 to 3.1%. However, banks and building societies have recently been pulling their savings accounts, Santander being one of them, withdrawing its best buy easy-access saving account two weeks ahead of schedule, and replacing it with a new issue paying a lower rate of 2%.

That said, a spokesperson for the Savings Guru, said that this withdrawal was not surprising and the likes of Skipton moving up to 2.55% is good news, and indicates that the market will consolidate around 2.25 to 2.5% on easy access. Likewise, the spokesperson said that the fixed rate changes that have been seen this week are unlikely to lead to a “full-blown market correction.”

The best saving rates right now

There is a wide range of saving rate deals currently available, and some are even breaking the 5% barrier. Below, we walk through a few of them.

The Barclays Rainy Day Saver account at the time of writing, was offering 5.12% interest on balances up to £5,000, after which this decreases to 0.15%. In a year, those with £5,000 saved will earn £250. There is, however, a £5 monthly membership fee, and you have to pay at least £800 each month. It also has some good rewards for those who are already Barclays customers. The Nationwide FlexDirect Current account is offering just below this at 5% on the first £1,500 saved, with no fees.

The Aldermore 1 Year Fixed Rate Cash ISA has also been highlighted as a good go-to, with 3.65% interest and a minimum deposit of £1000, with withdrawals subject to a deduction of 90 days’ interest.

With regard to fixed rates, those who choose this kind of savings account will be unable to access their money, typically for a period of at least three years, unless they pay a penalty fee. So, this won’t be a viable option for everyone. Investec Bank plc Raisin UK – 2 Year Fixed Term Deposit is currently offering a 4.61% rate for savings between £1,000 and £85,000, but the highest rate on the market is offered by Gatehouse bank, which has a five-year deal that pays 5.1%.

For more information on the best saving rates, check out MoneyFacts or MoneySupermarket. 

Tags: cost of living crisis, interest, interest rates, ISAs, savings

Mortgage rates and house prices 

by Madaline Dunn

While Liz Truss recently announced a U-turn on one of the most unpopular items in the mini-budget, scrapping the 45p rate on the highest earners, the effect of the emergency budget has been wide-ranging and is having a huge impact on the housing market.

Breaking news about house prices, mortgage deals and interest rates have hit the headlines, with the UK in financial turmoil. In the hubbub of it all, it might be hard to know where you actually stand, and it’s understandable to be concerned about what the news means for you and your home or housing dreams.

At The Salary Calculator, we’ll explain:

• How interest rates have been affected by the recent budget and what’s going on with mortgage deals
• How house prices are faring
• What the experts are advising

Interest rates and mortgage deals

The Bank of England raised interest rates from 1.75% to 2.25% in September, and following the announcement of the mini-budget, there were predictions that the Bank of England could be forced to raise the base interest rate to 6% next summer. This resulted in nearly 1,000 mortgage packages being pulled overnight from the British market. According to Moneyfacts, 935 out of 3,596 mortgage products were wiped between Tuesday and Wednesday, doubling the record high of 462 back at the start of the lockdown.

This week, it has been announced that the UK’s largest mortgage lenders are putting deals back on the market but also raising rates once more. Moneyfacts outlined on Tuesday that the average new two-year fixed rate jumped to 5.97% – this is despite having already risen to 5.75% on Monday. Halifax, part of Lloyds Banking Group, for example, announced on Wednesday that it would be updating the rates on its homebuyer mortgage rates. The result is that its rate for a two-year fixed deal for a customer offering a 25% deposit is up from 4.61% to 5.84%, while a five-year fix with the same deposit will now stand at 5.44%, and a ten-year fix will be at 5.34%. This is similar across the board.

Alongside those trying to enter the housing market, around 1.8 million fixed deals are scheduled to end next year, meaning that many people are going to be faced with high costs when it comes to taking out a new mortgage.

Of course, the news has been devastating for millions. New research by Property Rescue, which considered the perspectives of over 1,000 UK-based homeowners, found that over a third of homeowners are worried they may have to choose between heating bills and mortgage payments. Not long ago, there were reports of people having to choose between food and heating; now, the roof above their heads is in question. The study, conducted by Perspectus Global, found that 41% will now have to turn to their savings, and 21% believe they may have to sell their homes due to skyrocketing mortgage interest rates.

Speaking to those who are concerned about their mortgage prospects, Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “Seeking advice from an independent broker would be wise, especially for those borrowers who have not yet started the mortgage process and are deterred by the level of choice and much higher mortgage rates than they were perhaps anticipating.”

House prices to fall

While statistics had recently shown that average asking prices were 8.7% higher in September than a year ago, following the mini-budget fiasco, house prices are now projected to fall, at least in London, according to estate agent Knight Frank. Specifically, the agent predicted a fall in the average house price by 10% over two years. Similarly, Capital Economics predicted that “despite the reduction in stamp duty,” this is the beginning of the most “significant correction” in house prices since 2007. They added: “The sharp rise in interest rates now expected means that prices are more likely to fall by 10-15% than the 7% we previously anticipated.”

Pantheon Macroeconomics senior UK economist Gabriella Dicken, on the other hand, while projecting a more conservative fall in house prices, said it “was the start of a prolonged fall in house prices” and that she expected “house prices to fall by around 5% over the next 12 months”.

Discussing the recent impact on interest rates and mortgage deals, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “It’s difficult to see this as anything other than a sign of things to come, as these pressures raise the risks not only that price rises stagnate, but that they begin to fall. There is the chance that we could see a significant correction in the coming months.”

What are the experts advising

With so much uncertainty around the housing market, some mortgage experts are advising those on a fixed rate with a term of 18 months or less to reach out to their broker and consider their remortgage options. Meanwhile, Martin Lewis says that people should only overpay if their mortgage rate is higher than the rate they’d earn saving: “As a simple example, £10,000 in savings at 2% earns £200 for the year, yet use it to overpay a 3% mortgage and it reduces costs by £300 for the year. Effectively overpaying is tax-free ‘saving’ at the mortgage rate, so if the rate’s higher than savings (after tax) it wins,” he said.

For those entering the housing market for the first time, Chris Sykes at Private Finance, a mortgage broker, said it’s important to make sure your finances are in order and your credit score won’t let you down. He explained: “Borrowers need to be careful in tough times, as something as small as getting a CCJ [county court judgment] by refusing to pay a £60 parking fine, or missing payments on utility bills after moving out of a property, can affect the lenders at a borrower’s disposal, and affect their interest rates if these were recent and they have little other credit presence.”

Ultimately, make sure to think things through and access independent advice before you jump into any decisions related to your mortgage and housing. Moreover, if you’re struggling with mortgage payments, reach out for help as soon as you can. The likes of  Citizens Advice, StepChange, or National Debtline can be of help here.

Tags: cost of living, house prices, housing market, interest rates, mortgage deals

Mortgages and interest rate increases

by Madaline Dunn

The latest figures shows that in the six months to May, UK mortgage rates rose at their fastest pace in ten years. According to research by Hamptons estate agents, this interest rate rise means that it is now cheaper on a monthly basis to rent than to buy. Moreover, over two million households in the UK will see mortgage payments rise.

If you have a mortgage, the headlines are likely causing confusion and concern, and it can be challenging to know where you stand.

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

• What’s happening to interest rates on mortgages and how people will be affected, and
• What options do people have to navigate soaring costs

The interest rate rise and its effect on mortgages

In an effort to address rising inflation, the Bank rate rose from 1% to 1.25% and there have been further warnings that this could increase to as much as 3% by the end of the year. The rate hasn’t been above 1% since 2009, following the financial crash.

According to David Hollingworth, L&C associate director, this means “an entire generation of homeowners used to low rates could be facing a shock. Adding: “Although rates remain low in historical terms the available deals have already risen rapidly. Our analysis shows that the average of the ten largest lenders’ lowest two-year fixed rates for remortgages have already trebled since the lows of last October. That is an increase of more than £130 per month for a £150,000 25-year repayment mortgage.”

But, what does this mean for those with mortgages? Well, those on standard variable rates (SVRs) or tracker rates will be hit the hardest, with the former seeing an average annual increase of £191, and the latter £303, according to UK finance. This will also impact around 2.25 million homes (a quarter of mortgage borrowers).

Those who are on fixed rates (85% of all mortgages), however, will not have to deal with the increase until they remortgage. That said, 1.3 million borrowers are set to come to the end of their fixed-rate deals this year. According to Moneyfacts.co.uk, those remortgaging onto a fixed rate deal will be faced with average rates of around 3.25% for a two-year fix and 3.37% for those locking in for five years.

It’s not just those with mortgages who will feel the sting either. Tom Selby, head of retirement policy at AJ Bell, outlines that renters will also be on the receiving end of this hike and “also likely see costs increase.” Speaking to Sky News, he said: “Landlords will inevitably pass on their own higher costs, although when this happens will depend on the terms of your rental agreement.”

Discussing the impact that these rising rates will have on people, Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said that rising prices and rates risk will lead to people being trapped in pricey mortgages that they’re unable to escape, turning them into “mortgage prisoners.” Unfortunately, though, this is already happening and according to Rachel Neale, lead campaigner for the UK Mortgage Prisoners group, over 200,000 people in Britain have already been put in this position.

What are the options?

Looking ahead, it’s likely that rates will climb further. Grainne Gilmore, head of research at Zoopla, said to cope with this, “locking into a rate shortly could save hundreds over the longer-term.”

Meanwhile, for those whose mortgage is set to expire in the next six months, it might be a good idea to remortgage, as it could work out cheaper than later on (for example, November or December’s average rates.)

It has also been recommended by some that overpaying now could save you money in the long-term; Alice Haine, personal finance analyst at Bestinvest, said: “Paying down debt or adding an extra monthly sum to their emergency fund would also strengthen their financial reserves against the myriad of challenges ahead.”

Some lenders are also offering help. For example, Nationwide has expanded its lending ratio, and introduced a simple switcher process. Santander, on the other hand, has introduced a 5% deposit for first-time buyers. At the end of June, it was also announced that from 1 August, borrowers’ finances won’t be subjected to the mortgage market affordability test, where banks and building societies calculate how much to lend.

Mortgage Prisoners UK, a not-for-profit organisation that campaigns for fairer mortgage rates for all, argues not enough is being done, and has called on the government to take action. However, in a statement, a Treasury spokesperson said: “We know that people are struggling with rising prices and worried about the months ahead. That’s why we’ve stepped in to ease the burden, helping eight million of the most vulnerable British families through at least £1,200 of direct payments this year – and giving every household £400 to help pay their energy bills.”

Adding: “As part of our £37bn support package we’re also saving the typical employee over £330 a year through the imminent National Insurance tax cut, are allowing Universal Credit claimants to keep £1,000 more of what they earn and have made the biggest cut to all fuel duty rates ever.”

Tags: cost of living crisis, Economy, housing market, interest rates, Mortgages

Student loans and interest rates

by Madaline Dunn

According to the OECD England has the most expensive publicly-funded university system in the world. Back in 1998, student tuition fees were £1000 a year, which increased to £3000 in 2006, and then skyrocketed to £9000 in 2012. Alongside this massive hike in tuition fees, since 2012, maintenance grants and NHS bursaries have been abolished, forcing many to take on more debt in the form of loans, rather than benefiting from non-repayable grants.

Student loans come with interest, which is added all the time, and you may have seen recent reports that there are changes coming for student interest rates, which will reach up to 12% in some cases.

Interests and loans can be complicated at the best of times, and circulating reports may have you furrowing your brow, but at The Salary Calculator, we’ll walk you through all the changes and explain:

• What’s going on with student loan interest rates
• How you might be affected
• Whether there are further changes ahead

Student loan interest rates

In England, according to government figures, the average amount of debt a student accumulates from their time studying is £45,000, and with fees and interest so high, few ever fully repay their loans. In fact, this percentage is at 20%

That said, according to the Institute for Fiscal Studies, students who took out a loan after 2012 are in for a “rollercoaster ride”. Interest rates on post-2012 student loans are based on the retail prices index, and after RPI rose in March, most graduates will see interest rates rise from 1.5% to 9%. Higher earners (with an income of £49,130 and above) will be hit the worst, however; the maximum interest rate on their loans will increase from 4.5% to 12% for half a year. 

According to estimates, this increase means that the average graduate with £50,000 debt will incur around £3,000 in interest over six months. The IFS study outlined: ​”That is not only vastly more than average mortgage rates, but also more than many types of unsecured credit,” adding: “Student loan borrowers might legitimately ask why the government is charging them higher interest rates than private lenders are offering.”

Looking ahead, Ben Waltmann, a senior research economist at the IFS, explained that unless the government makes changes to the way student loan interest is determined, there will be “wild swings in the interest rate over the next three years.” He outlined: “The maximum rate will reach an eye-watering level of 12% between September 2022 and February 2023 and a low of around zero between September 2024 and March 2025.”

He said that there is “no good economic reason for this.” Adding: “Interest rates on student loans should be low and stable, reflecting the government’s own cost of borrowing. The government urgently needs to adjust the way the interest rate cap operates to avoid a significant spike in September.”

To learn more about how the changes will specifically affect you, check out the government website, which provides a complete guide to terms and conditions. 

How will this affect you?

According to a Tweet by Michelle Donelan, the Minister of State for Higher Education, this interest rate hike on student loans has “no impact on monthly repayments.” Further to this, she said, “These will not increase for students. Repayments are linked to income, not interest rates.” However, not everyone agrees that the situation is as clear cut as this. 

The IFS’s Waltman explained that while it is true the interest rate on student loans has “no impact” on monthly repayments, it affects “how long those who do pay off their loans before the end of the repayment period have to make repayments and therefore the total amount these students repay over their lifetimes.”

In addition to this, the IFS said that one of the many detrimental effects of the hike could be discouraging students from going to university for fear of mounting financial costs, and with record hikes to the cost of living, this is a valid and reasonable concern. Alongside this, the IFS also said that the change might force some graduates to pay off large sums of debt when it “has no benefit for them”.

Are further changes ahead?

Aside from changes to interest on student loans, the government has announced proposals that will affect loan accessibility, too. In response to the Augar review of post-18 education, in February, the government announced plans to block students who ​​fail to attain English and Maths GCSEs or two A-levels at grade E from qualifying for a student loan.

Experts have warned that these new changes will detrimentally impact students from lower-socio-economic backgrounds the worst and put a “cap on aspiration”. Sir Peter Lampl, founder and executive chair of the Sutton Trust education charity, outlined: “The introduction of any minimum grade requirement is always going to have the biggest impact on the poorest young people, as they are more likely to have lower grades because of the disadvantages they have faced in their schooling.”

The government also outlined that the repayment threshold will be cut from £27,295 to £25,000 for new borrowers beginning courses from September 2023, and further to this; students will now pay off their debt for ten years longer (for 40 years rather than 30 years).

Speaking about the changes and their impact on graduates, Martin Lewis, founder of MoneySavingExpert.com, said: “It’s effectively a lifelong graduate tax for most.” Adding: “Only around a quarter of current [university] leavers are predicted to earn enough to repay in full now. Extending this period means the majority of lower and mid earners will keep paying for many more years, increasing their costs by thousands. Yet the highest earners who would clear [their debt] within the current 30 years won’t be impacted.”

Tags: 2022, Economy, interest rates, student loan