During the height of the credit crunch, panic surrounding the near-collapse of major UK banking names prompted many people to withdraw their money and keep it at home. But stashing your money under the mattress is as good as throwing money down the drain. Not only do your risk losing it altogether if your home gets burgled, but if you aren’t earning any interest, your savings have no hope of keeping pace with the soaring cost of living.
There are now greater safeguards in place for savers, so that you don’t have to worry that money held in savings accounts won’t be protected whatever happens in the future.
Here, we show how to keep your savings safe and earn the best returns possible…
New protection limits for savers
Under new rules introduced on January 1, savers now receive protection fixed at £85,000 (£170,000 for joint accounts) from the FSCS. This means that in the event of a bank’s collapse, this amount will be guaranteed. The new limit, which is up from £50,000, brings the UK’s compensation scheme in line with the rest of Europe, where savers receive €100,000 of protection.
You can watch our interview with FSCS boss Mark Neale to find out more about the increase.
If you have savings worth more than £85,000, make sure you spread your money between different providers to ensure it is fully protected. Before doing this, always check which banking group various different accounts sit with, as two seemingly distinct providers might fall under the same banking license.
For example, Birmingham Midshires and The AA both operate under the HBoS license, meaning any customer who has money saved with both providers will only be protected up to £85,000. Read our article ‘Who owns who?’ to find out which banks operate under the same license.
Easy access – without the risks
If you are keeping your money at home because you want easy access to it, there are plenty of accounts available which enable you to get your hands on your cash whenever you want, and you can earn some impressive rates of interest.
The Post Office’s Online Saver account, for example, pays 2.90% annual interest. The account can be opened with a minimum investment of £1, and the maximum amount that can be held is £2 million.
The Online Saver rate includes a bonus of 1.25% guaranteed for first 12 months. There is no limit on the number of withdrawals you can make, and interest can be paid either monthly or annually, so the account is a good option for savers who might be looking to supplement their income.
Other competitive easy access accounts include Santander’s eSaver account Issue 2, which pays 2.75% on a minimum investment of £1. This rate includes a steep 2.25% bonus for the first 12 months, and after that the rate drops to just 0.5%, so you will need to be prepared to move your money then.
Alternatively, the ING Direct Savings account pays 2.70% annual interest, guaranteed for 12 months, again on a minimum investment of £1.
If you don’t need immediate access to your money, then a regular savings account could be a good option. Setting up a standing order into a regular savings account means that you will get into the habit of paying money into the bank each month rather than keeping it at home.
The HSBC Regular Saver account, for example, pays an impressive 10.00% annual interest fixed for a year, but only HSBC Premier, HSBC Advance, HSBC Graduate Advance or HSBC Passport customers are eligible to apply. You must save between £25 and £250 a month into this account and no withdrawals are permitted during the 12 month fixed term.
If you don’t have or want one of the HSBC current accounts outlined above, then Santander’s Fixed Rate Monthly Saver Issue 12 account pays 4.00% annual interest to savers paying in between £20 and £250 a month. You will receive a lower rate of interest in any month in which you pay in less than £20 and withdrawals are not permitted.
Chorley & District Building Society also pays 4.00% on its Santa Saver account, which allows you to deposit between £1 and £150 a month. Previously missed deposits or shortfalls can be made up, offering savers flexibility.
Keeping your money at home means you won’t be able to take advantage of your annual tax-free savings allowance. You can invest up to £5,100 in a cash ISA this tax year and returns are free of tax. Many of these accounts are easy access too, so you don’t have to give notice every time you need your cash.
The Santander Flexible ISA, for example, pays 2.85% on a minimum investment of £1, and you can get access to your money whenever you want. However, that this rate is only guaranteed for 12 months, so you may want to move you money at the end of this period.
Transfers in from other ISAs are not permitted.
An alternative is the Halifax ISA Direct Reward account. This account pays 2.80% annual interest, again on a minimum investment of £1. Qualifying current account holders can earn an extra 0.20% interest, boosting their tax-free returns to 3.00%. You can make unlimited withdrawals without penalties from this account, but you need to keep a balance of at least £1 for the 12-month reward period.
Northern Rock’s ISA Saver account also pays 2.80% annual interest, and this rate includes a 1.50% bonus for the first 12 months. The minimum investment is £1,000 and you must give 120 days’ notice if you want to make a withdrawal.
Don’t delay...deposit your money today
Whichever type of savings account you go for, remember that keeping your money in the bank is much safer than keeping it at home, where you will never earn any interest on it.
Every day you keep it under the mattress, you are missing out on valuable returns, and with better safeguards now in place for savers, there’s no excuse not to ensure your money is working as hard as possible for you.
Please note: Any rates or deals mentioned in this article were available at the time of writing.