5 sensible plans for your savings

Having plenty of cash stashed in a standard savings account might be a comfort psychologically – but with interest rates still so low, it doesn’t always make the best sense.

While it’s always a good idea to have some savings you can get your hands on quickly, there are plenty of other homes for your money that might work harder for you. Here are five plans for your savings which could prove a better long-term bet than a bank or building society account.

1. Pay down your debts

So long as you are paying more interest on your debts than you are earning on your savings, it makes sense to clear them as soon as possible – starting with the most expensive.

Credit card debt can charge a typical APR (annual percentage rate) of 18.9%, so the first step is to move it across to a 0% balance transfer card (from a different provider), which you can read more about here. Barclaycard, for example, currently offers a market leading 31 months interest-free on balance transfers. A 3.5% fee applies, but this is reduced to 2.99% by a refund. And if you are transferring more than £2,000, you will also get a £20 back if you apply for the card by April 28. 

Personal loan rates are much lower than those on credit cards, with lenders such as Clydesdale Bank now charging less than 4.5%. But this is still probably more than you will earn on your savings so pay off any you have outstanding. Early settlement fees are minimal these days - usually one month’s interest.

And, unless it's interest-free (such as the first £250 with First Direct's 1st account), there's little point forking out for overdraft charges when you have savings you could use to get you back in the black with your current account.

2. Your current account!

Talking of current accounts, many now beat even the best standard savings accounts in terms of the in-credit interest they offer. Santander’s 123 account, for example, pays an annual equivalent rate (AER) of 3.00% on balances of between £3,000 and up to £20,000. You’ll also get 3.00% cashback on your mobile, home phone, broadband and paid-for TV packages, 2.00% on energy bills and 1.00% on any Santander mortgage payments (up to £1,000 a month). To qualify for this account, which has a £2 monthly fee, you must pay in at least £500 a month, and set up two direct debits.

Other high-interest paying current accounts include TSB’s Classic Plus account which pays 5.00% AER on balances up to £2,000, and the new Club account from Lloyds Bank which offers a tiered rate of interest (maximum 4.00% AER) on balances of up to £5,000.

3. Tax-free ISAs and NISAs

The start of the tax year means a whole new ISA allowance, so make sure you take advantage and keep as much of your interest as possible away from the taxman.  Between now and the end of June, you can invest up to £5,940 in a cash ISA, but from July 1, under New ISA (NISA) rules announced in the recent Budget, the overall ISA limit will increase to £15,000.

But you don’t need to wait until then to start saving tax-free. In fact, the earlier in the tax year you start saving the greater your returns will be, and you can then top up your savings to the new £15,000 limit in July if you are able to. Check out the best Early Bird ISAs here.

Soon, savers will be able to hold an even wider range of investments within the new NISA, as the government is currently consulting on when and how to allow peer-to-peer lending within the tax-free wrapper. 

Peer-to-peer lending sites enable individuals to lend money directly to borrowers, with the aim of earning better returns than they could from bank or building society. But, while the sector has recently come under regulation from the Financial Conduct Authority (FCA) your cash will not be protected by the Financial Services Compensation Scheme (FSCS). So here are five checks to make of your own before applying.

Wellesley & Co. peer-to-peer provider is currently offering £50 cashback to new customers investing at least £2,500 exclusively through MoneySuperMarket, which you can read about here.

4. Overpay your mortgage

If you have any money spare at the end of the month, why not make monthly overpayments on your mortgage? After all, your savings may only be earning pitiful rates of interest – and reducing what’s probably the biggest loan of your life before interest rates rise, could be a very wise move.

According to calculations by MoneySuperMarket, overpaying a £100,000 mortgage by £250 a month over a 15-year term could save a massive £12,242 in interest alone and reduce your mortgage term by four years and eight months. This example assumes that the homeowner is paying a typical mortgage variable rate of 4.38%.

Most lenders will allow you overpay by up to 10% a month extra penalty-free but a few will allow more. David Hollingworth at London and Country mortgage broker said: “HSBC allows 20% overpayment without early repayment charges, but that is of the monthly payment so wouldn't allow for an annual lump sum.”

5. Home improvements

Steep moving costs, like stamp duty, mean it could make sense to stay put and improve your existing home – adding value at the same time. Spring is one of the most popular times of the year for a spot of DIY with plenty of bank holiday weekends to get things done.  According to research carried out on behalf of AA Financial Services, four-in-10 of us want to make changes to our homes this year. Are you among them? Tell us by voting in our poll.

Please note: any rates or deals mentioned in this article were available at the time of writing. Click on a highlighted product and apply direct.

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