Britain faces a slow economic recovery – how to save to beat it

The economy needs another six months to recover, but savers can still make their money work hard to help.

Savers were dealt a further blow today when the Bank of England delayed Britain’s economic recovery for another six months, but they can still maximise returns with the right deals.

The Bank of England today said the UK economy will recover pre-pandemic levels by the end of 2021 at the earliest. 

In May the Bank predicted this would have happened by the second half of 2021.

As well, the Bank’s Monetary Policy Committee unanimously held Base rate at 0.1%, a record low.

The low base rate penalises savers, as the rate is factored into the interest most deals pay consumers. 

The only upside for savers is that the Bank did not make interest rates negative, as some experts had predicted.

Savings rates have also been falling due to the uncertain global economy. Added to that is a new central bank funding scheme that allows high street lenders to borrow from it very cheaply, meaning they do not need to offer good rates to savers to attract deposits.

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Fortunately for those who want to keep some wealth in cash there are still deals offering reasonable rates that far outstrip inflation, currently 0.6%.

For those who value quick access to their money, National Savings & Investments (NS&I) has an easy access deal, Income Bonds, paying 1.16%.

Savers need £500 to open the account, and putting £10,000 in would lead to returns of £115.90 after 12 months, with access to cash at any point.

NS&I also has the second- and third-best easy access deals, paying 1% and 0.8% respectively, as other savings providers have cut rates. 

The Treasury-backed savings institution is on a mission to attract as much of the public’s money as possible to pay the government’s Covid-19 bill, meaning its rates are unlikely to drop and could even rise further with new deals.

Rachel Springall, personal finance expert at Moneyfacts, says: “NS&I could be a trusted safe haven if savers feel they have nowhere else to turn.

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“During the First and Second World Wars the flow of funds into the National Savings Movement was instrumental in raising funds to help the war efforts. Now with the coronavirus pandemic, the NS&I funds raised from savers may prove a vital injection.”

With the economic recovery delayed until at least the end of next year, one-year fixed-rate bonds offer great security to savers over the period.

Fortunately, savers picking these deals now can benefit from a recent flurry of competition between challenger banks over the past month that has driven up rates, Savings Champion analysis shows.

Smaller, challenger lenders that would not normally have been able to compete with their larger peers have been unusually competitive during the pandemic as they sense a rare opportunity to raise money quickly.

In recent weeks United Trust Bank (UTB) launched a one-year fixed bond paying 0.9%, then Charter Savings Bank came out with a rival bond at 0.91%.

UTB upped its rate to 1%, then 1.1%, and also has a two-year fixed rate bond at 1.2%.

Savers putting £10,000 into a UTB one-year bond would make £110 in interest over the period.

For consumers with money to put aside every month, a regular saver deal from Coventry Building Society pays 1.85% a year on up to £500 a month. Those putting the maximum of £6,000 in would earn £111 over 12 months.

But savers wanting to beat a slow economic climb back to pre-Covid levels would do well to move fast, as many of the current deals may not last long.

Springall says:

“The imperative for savers is to keep an eye on the top rate tables, because any decent deal is unlikely to last very long.”