Credit crisis for banks creates opportunities for savers

The recent move by the world’s largest central banks to inject more than £100bn into money markets may have boosted global stock markets, at least temporarily. But the emergency measures aimed at restoring investor confidence also indicate the extent to which the credit crunch has not yet eased, with some banks experiencing losses in the billions in late 2007, due to the collapse of the US sub-prime mortgage market. For savers, however, the credit crunch may be far from bad news, with many banks now offering savings rates well over the Bank of England’s base rate in an attempt to entice savers, and their money, through their doors.

A range of banks reported dramatic losses in the final months of 2007: Merrill Lynch, for example, made a net loss of £3.9bn over the course of 2007, compared to a net profit of £3.69bn in 2006; and Citigroup fared even worse with a net loss of £5bn in the last quarter of 2007 alone. The losses have been attributed to the banks’ investments in the riskier ‘sub-prime’ mortgage market, which collapsed in the US in the late summer of 2007. The resulting ‘credit crunch’ has been characterised by a growing reluctance among banks to lend to each other, as well as a sharp slowdown in the number of mortgages that are being approved, because of the banks’ difficulties in raising funds.

In February, fears of an imminent recession led to the US Federal Reserve, the European Central Bank and central banks in the UK, Canada and Switzerland combining forces to supply world markets with emergency funding. Economists seem to have generally welcomed the banks’ show of support, although the long-term impact of such measures continues to be debated.

Whatever the outcome, though, many observers may feel that the need alone for emergency measures merely reinforces what appears to be a fairly bleak economic forecast. Thankfully, there is a silver lining to this dark financial cloud. Banks are looking for new ways to raise funds, with banks rivalling each other to win the savings of retail customers. That means that there are some fantastic savings deals on the market right now, offering risk-free returns and rates well above the Bank of England base rate. Northern Rock, for example, is currently offering online savings accounts with as much as 6.99% gross interest on as little as £1 (although this includes a temporary bonus of half a percentage point); Alliance & Leicester, meanwhile, is offering 6.25% tax free on as little as £1 in its individual savings account (ISA).

Of course, not all savings accounts will offer the best returns. You will need to shop around to find the best offers on the best account for you; for example, do you need instant access to your savings or could you commit your money to a notice account of six months or more? If you can opt for the latter, you may be able to boost the interest rate to as much as 6.8%, although this may not be a sensible route if you think you might need to access your money in a hurry. Whatever account you choose, the important factor is taking the time to assess your options so you can make the most of current market conditions. At BeatThatQuote.com, you can easily compare a huge range of savings accounts from different providers - and, if you’re thinking of getting a new savings account, now couldn’t be a better time to get shopping.

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