Online platforms track savings rates!

The warning by Prime Minister, David Cameron, that the eurozone crisis is barely halfway through means small savers in their millions will sink even more cash into the coffers of banks and building societies.

The Government guarantees this money is safe, under its Financial Services Compensation Scheme (FSCS), to a limit of £85,000 per person, per deposit taker. But can this understandable search for safety be easily squared with the need to earn a decent return?

Older savers relying heavily on income from savings suffered a blow at the end of April when the Bank of England admitted that inflation, as measured by the retail price index, was likely to top 3% for the rest of 2012 because of higher energy prices and tax increases.

With inflation running at 3.5%, basic-rate taxpayers need 4.5% from savings accounts merely to stand still – and retain the value of their money.

When money is within an Isa tax shelter, of course, the same 3.5% figure would suffice.

Yet Sylvia Waycot, at Moneyfacts.co.uk, says the average no-notice savings account pays an average of 1.06%, with notice accounts only slightly more generous at 1.56%.

The average Isa savings account earns 2.68%, while returns on fixed-rate bonds range from 2.68% for one year to 3.40% (three years) and 3.99% (five years).

At this time of year you should have a good idea of the performance of your own accounts: for banks and building societies write to customers at the end of the tax year to detail the rate being paid by each account.

Too many people, I suspect, put these letters in their file and largely ignore them. With rates generally so low, why bother to move an account from one provider to another?

David Black, at financial research company Defaqto, has studied savings accounts available since May 2009 and fears lazy savers pay a heavy price for inertia.

He considered the plight of a basic-rate saver with £1,000 to invest in May 2009. If they stuck with the lowest-paying instant/easy access account, with an interest rate of 0.01% gross AER for three years, their money would have earned just 24p in income, he says.

Just over one in five of all easy access accounts (22%) pay interest of 0.01% or less on a £1,000 balance.

But if the same saver had found the top-paying account in May 2009, switched to the best payer in May 2010 and again in May 2011, their interest would have totalled £71.73.

Black says: “This analysis really illustrates the benefits of reviewing your savings account on a regular basis. There are significant benefits in switching your account every year to take advantage of successive accounts offering introductory bonuses. “Typically, the highest rates either have an introductory bonus or a guaranteed minimum rate, so it makes sense to use them and switch to another such account when the bonus or initial rate period ends.”

But when you’ve spent years building up a lump sum, who enjoys tracking the changes at each bank and building society savings account?

Two online platforms are designed to make the job easier.

Governor Money was launched as an online cash savings platform in April 2011 by Family Investments, a mutual society managing about £3.5b for more than 1.75 million people, with more than £1bn in Isas. Its customers select their accounts from a range listed on the website and, after that, they should never have to worry about their money lagging behind on a poor rate.

Governor Money sends an alert when a rate is about to change, and provides instant money transfers to a better-paying account.

Miles Bingham, chief executive of Governor Money, says: “At the click of a button you choose another product to provide a better return. While banks rely on customer inertia to cut rates, Governor Money is on the customer’s side.”

Having just marked its first anniversary, Governor Money promises total security: all accounts listed are covered by the FSCS, and an alert warns savers if their account exceeds the £85,000 limit of the Government protection scheme.

Governor Money also intends to manage clients’ money better by splitting their holding into an easy access short-term account for sudden needs, with the rest locked into long-term accounts to earn a higher rate.

If they don’t need cash urgently, for instance, many savers might be tempted by the new five-year fixed-rate bond from the AA paying 4.40% on maturity, with early access allowed, subject to an interest penalty determined by the year of withdrawal, ranging from 90 days to 365 days.

Mr Bingham adds: “In this market, labels can be misleading. For example, you might think that savings accounts for over-50s offer some benefit or additional value not available to the public at large, because older people are more likely to have cash. “Our research found this is clearly not the case. For instance, using an average of the top 20 current rates for over-50s products, savers with £5,000 would accrue £111.50 interest over one year, against £158.50 for the whole of the market top 20 average. That gap of £47 shows why over-50s shouldn’t always choose products which appear to be tailored for their age group.”

Mr Black says: “When Governor Money launched it offered very attractive rates, particularly over four years. Acting on behalf of many savers it can negotiate good deals from providers.

“But you can sometimes find better deals elsewhere: Governor Money lists a 4.05% four-year fix from Progressive Building Society of Northern Ireland on minimum £100 deposits, whereas my best buy over four years is 4.2% from State Bank of India.”

When a new rival, Savings Champion, launched in November, director Anna Bowes pointed out that 32% of savings accounts paid less than Bank base rate (0.50%), with more than a fifth (22%) paying 0.10% or less on at least one or all tiers.

“The message is clear”, she said, “with rates at an all-time low, savers really are the victims of this downturn.”

For them, Savings Champion offers a rate tracker service which monitors movements of all UK-based savings accounts.

Unlike Governor Money, it doesn’t actually hold any client money, it merely indicates “best buy” accounts.

Backed with private money, Savings Champion doesn’t charge fees; eventually it plans to make money by putting clients through to purchase other financial products, including mortgages.