Overview: Interest rates and cash accounts

Current accounts or bonds - which one do you want to put your money into?

11:46 10 December 2013

Investors should consider cash accounts instead of savings bonds because of interest rates.

 

Traditionally, placing your money into long-term savings bonds yielded a better return than maintaining cash accounts. It may no longer be that way. Interest rates are such that it might just be better for investors to maintain their interest drawing cash accounts than investing in savings bonds.

The Numbers:

• Savings bonds used to draw interest rates of up to 8%
• Currently, you are looking at approximately 1.75% with a low of 0.5%.

Current accounts however, have been seeing an increase instead of the downward trend in interest rates found in savings accounts. This has generated a trend where banking customers no longer remain with a single bank for an extended period of time but switch banks frequently.

The result:

• Banks have introduced loyalty programs and introductory bonuses to increase their share of current account business. In other words, these programs are designed to attract customers to switch to new accounts and probably make them stick with their institution.

 

• Interest rates are being offered at as high as 5% for a fixed amount generally the first £2,500 though this amount may vary between banking institutions. This amount is currently unmatched in the savings market.

The Benefits

• Taking advantage of the introductory offers, you can get the most out of the potential earnings from interest rates on your account. It may be a bit of a hassle to change banks continually every month to six months depending on the introductory offer but it can offer you a great way to take advantage of interest rates and improve your overall savings.

The current economic climate means that inflation rates often undo interest rates making it difficult for your money to grow. Taking advantage of these types of offers on current accounts can see your account grow even in this economic climate.