Savings Bonus


Neil Simpson is a former Personal Finance Journalist of the Year and the author of the Buy-to-Let Investor column in Financial Mail on Sunday. He is a keen property investor and writes about buy-to-let online as well as for a variety of publications including City AM.

This might be a tough time for many landlords to get a new mortgage – the credit crunch having swallowed up all the easy money and all that. But it’s a superb time to put some cash aside in a rainy day fund.

Every landlord ought to have some money in an easy access account for emergencies. A high interest tax fund is equally important – the next set of tax bills are due at the end of January. But where are the best places to save? In the post-Northern Rock world plenty of banks and building societies are vying for our cash. They need to boost their deposit bases to ensure they don’t run out of funds next year. So interest rates are rising far faster than Bank of England base rate.

The best accounts will easily beat inflation, even after tax. Trouble is, a quick look at the latest best-buy charts throws up several unlikely names. And bearing in mind what did happen to Northern Rock, it’s not a good time to trust cash to an unknown provider. Here’s a run down of the latest savings deals that are worth considering – and the background to the providers.

* Experts say we shouldn’t be concerned that it is Northern Rock’s neighbour, Newcastle Building Society, that is at the top of many best-buy charts this Christmas. Its online Net Issue account is offering a great 6.43 per cent before tax. That works out as 5.14 per cent once standard savings tax has been deducted. Higher rate taxpayers will be earning the equivalent of 3.85 per cent once 40 per cent of the interest has been deducted. Newcastle building society is an independent company that’s been around in one form or another since 1861. It is currently the 13th largest building society in the country. Independent experts say that as well as being a strong company, Newcastle has also got a good record for passing on interest rate rises to savers. It isn’t known for luring in new customers with chart-topping rates, only to cut them once they are on board. So it’s worth considering.

* The next name in most best-buy savings charts is the new one – ICICI Bank. Its HiSave account is currently paying 6.41 per cent before tax. The account promises to pay at least 0.3 per cent over base rate until the end of 2011. But who is ICICI Bank? It’s a newcomer to the UK, and its parent company is the largest private bank in India. Another new name in the charts is the IceSave account. It is offered by Landsbanki, which is Iceland’s largest commercial bank. It is paying 6.3 per cent before tax, and has a rate guarantee saying interest will be 0.25 per cent over base until October 2009 and then at least equal to base rate until October 2011. Independent experts admit that saving with a new name may not feel wise in the current climate.

But it is worth noting that as with all deposit-takers in Britain ICICI Bank and Landsbanki have been fully authorised to do business here. Savers are protected by our beefed-up deposit-protection scheme and experts say the bigger risk with such new names is that they woo customers with good rates then cut them when they have hit their development targets. That’s what Dutch owned ING Direct has been accused of doing. And it is what the rate guarantees from ICICI and Landsbanki are designed to counter.

* Sainsbury’s Bank is another relative newcomer to the savings scene – and another provider doing well in the savings charts this winter. It’s offering 6.25 per cent gross on its online savings account. Many people feel comfortable saving with a supermarket – there is a sense that the store won’t want to ruin its wider reputation by letting its savers down. And analysts say that so far Sainsbury’s has been a fair play provider. Its low cost base means it should be able to afford to keep its rates high as it grows. But as usual savers should keep an eye on things and move their cash elsewhere if the account does become uncompetitive.

* If you want to stick to a big, established savings name then you will have to accept less interest. Nationwide’s best online account pays a decent, but unspectacular 5.8 per cent gross. Halifax is even less generous. Its web saver account offers 5.26 per cent gross – well below the current base rate.

* Finally, older landlords who want a good home for their tax cash or emergency floats should consider the special silver-surfer deals or the branch based accounts for the over 50s and over 60s. The best of these come from the likes of Nationwide, Norwich & Peterborough, Skipton, Coventry and Newcastle building societies.