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Little respite for high-lump-sum savers

Savers have suffered four years of low base rates, with large cash holdings offering little advantage over smaller deposits.
March 12, 2013

Savers have suffered four years of UK base rates at 0.5 per cent, their lowest level in the 320-year history of the Bank of England. Among those hardest hit have been retirees affected by low savings rates.

And with the government's Funding for Lending programme removing the incentive for banks to offer savers good interest rates on their deposits, currently savers struggle to find any cash product that beats inflation.

Keeping your savings in cash is not risk-free as inflation erodes the value of your cash over time. After five years of retail prices inflation of 3.3 per cent, the purchasing power of cash - its value in real terms - will be 15 per cent less, and after 21 years, 50 per cent less.

But what about those who have a little bit more money put away, is anyone offering a product with higher barriers to entry and greater returns?

Variable-rate cash individual savings accounts (Isas) are one area where larger lump sums reap some rewards. First Direct's Cash Isa gives one of the best AERs on the market: 3 per cent when you have more than £40,000. It's also easy access, but on the other hand does require you to have a current account with First Direct. It is also tiered, so if your account falls below £40,000, the rate drops. Still, it is 0.20 per cent better than the next best rate, Coventry's 60 Day Notice Isa which has an AER of 2.80 per cent.

Fixed-rate bonds can also net you some inflation-beating rates: the AA's 3 Year Fixed Rate Savings Account has a minimum deposit of £50,000 at 2.80 per cent, but it isn't the best buy on the market. Britannia/Co-op's 3 Year Fixed Rate Bond gets you 3 per cent and only requires £1,000 in the bank. If you're willing to wait a little longer for your return then First Save's 5 Year Fixed Rate Bond has a rate of 3.05 per cent and again only needs £1,000.

So if you're looking for a specific product for your money, then yes, sometimes having larger lump sums will bring advantages. But if you are flexible and simply looking for the best savings rate then there is little difference between having £1,000 and £10,000. There really is no respite for savers.