Rates for larger savings accounts drop to just 0.89%

The latest findings from Investec Private Bank’s Savings Index³ reveals that between 1 February and 1 May 2009, banks and building societies reduced the rate on 725 savings accounts for balances of £25,000 or more. However, the rate of interest remained steady on 96 accounts and was increased on 10 accounts, confirming that there are still some attractive rates available to savers.

Although around one in 10 accounts for balances of more than £25,000 paid interest of 2% or more throughout the last quarter (1 February to 1 May), many savers for larger balances are losing out as the average rate for these accounts over the period was 0.89%. This was 2.46% lower than the average rate (3.35%) for the top five ‘best buy’ savings accounts⁴ on balances of £25,000.

With over one in ten (12%) of UK adults estimated to have more than £25,000⁵ deposited in cash savings accounts, Investec is urging savers to check that their bank or building society is paying a consistently competitive rate of interest. For instance, the interest rate on the Investec High 5 Account, which pays the mid-point of the top five savings accounts as chosen by Moneyfacts⁶, is currently 3.03%¹ gross AER², 2.53% above the Bank of England base rate.

Linda McBain, head of Banking, Investec Private Bank, said: “During the current low interest rate environment it’s particularly important that savers are not lured by short-term, headline grabbing rates and instead ensure that their money is deposited in an account paying consistently competitive returns over the long-term.

“Our latest Index shows that the average rate savers would have received for a deposit of £25,000 or more over the last three months was 0.89%, which is 2.14% less than the interest rate on our High 5 Account.”

The Index reveals that since the last quarter (1 November 2008 to 1 February 2009), the number of accounts paying less than 1% interest on balances of £25,000 has increased from 386 to 517 accounts during the quarter 1 February to 1 May 2009.

There has also been a marked reduction since the last quarter in the number of accounts paying between 3.01% and 3.5%. During the period 1 November 2008 to 1 February 2009, 47 accounts paid between 3.01% and 3.5%, compared to just 7 accounts between the period 1 February 2009 and 1 May 2009.

The Investec High 5 Account, which requires a minimum investment of £25,000, pays a market leading rate because each week Moneyfacts take the five highest savings rates in the market⁵, finds their mid-point and sets this as the rate for the High 5. This means that savers have the added assurance that the rate is set independently. Unlike other accounts, it does not rely on bonuses to inflate the rate.

1 The rate is correct as at 3 June 2009 and subject to variation.

2 AER stands for the Annual Equivalent Rate and illustrates what the interest rate would be if interest was paid and compounded once a year. Gross is the interest rate paid before the deduction of tax.

3 Based on data provided by Moneyfacts Group Plc for Investec Private Bank’s Savings Index which tracks on a six monthly basis interest rates on savings accounts for balances of £25,000.

4 ‘best buy’ savings accounts as defined as those with the highest rates of interest.

5 Based on an independent online survey conducted by Research Plus on behalf of Investec Private Bank. A total of 1001 UK adults aged 18 and over were surveyed between 26 February and 5 March 2009.

6 The rate is based on the average of the top 5 savings rates published on the Moneyfacts website www.moneyfacts.co.uk across the categories of no notice accounts, notice accounts, internet accounts, monthly interest accounts, accounts for the over 50’s and accounts with an introductory bonus.