People were getting 3% from Santander, this will be dropping to 1.5% in November and leaves many savers with half of the interest.
We expect many people will be looking to move their money from Santander as they look for the best savings rate options.
Most other savings rates are nearer 1% and the few that offer 3-5% only do so on very small amounts, requiring a lot of effort for relatively little return. Even a 5 year locked in rate rarely rises above 2%.
One option savers have is use Peer to Peer lending to earn a more reasonable rate of interest. Zopa is the oldest lender around and most well established so would be the one I’d recommend for first time investors.
Rates on offer are around 3 to 7% (*the middle interest rate category products tend to get oversubscribed more quickly.)
There is an element of risk but the lower interest rates are on offer with a protection fund and cherry picked loan applicants.
There are many other peer to peer lenders out there and the general rule of thumb is that the higher the rate of return the more risk you are taking. In the current unsure economic climate we would recommend caution.
The other option is to invest in stocks and shares. This has quite a high risk attached and we would recommend you buy into a fund which is managed by an expert fund manager. Some funds are split between shares, bonds, gilts and cash options to reduce your exposure to risk and also with lower returns.
Looking around at interest rates and headline inflation rates there seems little point to having money in the bank earning less than 1% as it’s value is diminishing.
As peer to peer lenders gain more funds we expect the rates of return to drop and the lending queues to get longer and longer. Most peer to peer lenders will take around 2 to 3 weeks to lend out your money and start you earning a return on it.
All repaid capital can be reinvested allowing you to grow your money.
The first rule has to be to pay off any loans or borrowing you have before saving. Get your costs and expenditure down as low as you can then look to build your bank balance.