So, here are our top 10 New Year’s resolutions for anyone wanting to really revolutionise their savings in 2011.
Use your cash ISA allowance
It’s common sense to use a cash ISA so that the taxman can’t touch the returns.
You can save up to £5,100 in this kind of account this tax year. From April 6, the start of next tax year, ISA limits will rise with inflation, which should ensure regular increases every year.
There are as many different cash ISAs as there are normal savings accounts, but if you want to make sure you can get your hands on your money quickly, an easy access account is likely to be your best option.
For example, the Flexible ISA Issue 3 from Santander pays 2.85% for the first 12 months and can be accessed online, by phone, in a branch or at a cashpoint. However, it doesn’t allow existing ISA funds to be transferred in, so £5,100 is the maximum you can save in it.
A number of easy access ISAs pay 2.80% and also accept transferred funds from ISA accounts filled in previous tax years, including the Halifax’s Cash ISA Direct Reward, the Bank of Scotland’s Cash ISA Direct Reward, Nationwide’s e-ISA and Principality Building Society’s e-ISA Issue 2.
Earn interest on your current account
You may not expect to earn money on your current account savings but, if you regularly leave a large balance sitting in yours, you could be getting decent returns.
For example, the Halifax Reward Current Account pays a £5 reward each month you deposit at least £1,000, meaning you could get back as much £60 a year. It will pay the cash even if you’re overdrawn, but this isn’t a great account for dipping into the red as you pay a daily fee.
The Santander Preferred In-Credit Rate Account pays a market-leading 5.00% on balances of up to £2,500, plus you get £50 in Love2Shop vouchers if you sign up through moneysupermarket.com
That means that, if you left an average balance of £1,000 in your account, you’d earn £50 over 12 months.
Be ready to move when a bonus ends
Most of the best savings accounts are boosted by a 12-month bonus rate, meaning your returns will drop off after the first year, sometimes quite dramatically.
For example, the market-leading easy access account is the Post Office Online Saver, paying 2.90% on a minimum balance of £1. That’s a great rate for this kind of account, but it has a 1.23% bonus which is only paid for the first 12 months.
That means that after a year, the account isn’t going to be half as competitive.
Meanwhile, the second best easy access account for a minimum investment of just £1 is the Santander eSaver Issue 2, paying 2.75%. This rate includes a huge 12-month bonus of 2.25%, meaning your returns would plummet after the first year.
These are good deals, so don’t avoid them just because of the bonus, but do keep track of when it ends so that you can shift your money.
If you are struggling to save a large chunk each month then don’t despair. Build up your savings pot gradually by putting a little aside regularly.
Even putting away just £5 a week adds up to £260 a year - savings you wouldn’t otherwise have. If you can afford to put away £25 or more a month, then you can earn some very competitive rates of interest.
For example, the HSBC Regular Saver pays a healthy 5.00% for 12 months, as long as you pay in between £25 and £250 a month. You can’t touch your cash for one year and you can only manage this account by phone or in a branch. If you are already an HSBC Premier, Advance, Graduate Advance or Passport customer then you qualify for the preferential rate of a huge 10.00%.
Look at fixed rate accounts for high returns
Do you have a lump sum that you want to put somewhere safe for a few years and don’t mind losing access? If so, a fixed rate bond could be the right account for you.
The market-leading account just now is the five-year fix from Coventry Building Society, allowing you to lock your money away at 4.75%.
Next best is the AA 5 Year Fixed Rate Savings account, paying a base-rate busting 4.5%.
Remember, however, that when interest rates start rising again, this rate may no longer look quite so competitive.
Check the restrictions
Whichever account you go for, always read the small print and check for any restrictions.
That means you have to be sure you can pay in the monthly amount needed to qualify for a regular saver, or agree to leave your money untouched for the full term of a fixed rate bond. Even some easy access accounts limit you to four withdrawals in any one year.
If you can’t meet the account restrictions, you will disqualify yourself from the rate of interest being offered and could end up earning much lower returns.
Save in your spouse’s name
You pay tax on the returns on your savings, except for the money you squirrel away into a cash ISA.
If you’re a higher rate taxpayer but your spouse isn’t, perhaps because he or she remains at home caring for children, then you could save in their name.
That means they would only pay the basic rate of tax on your money, rather than 40% for higher rate taxpayers and 50% for top rate taxpayers.
Never save more than £85k with any one bank
Under the Financial Services Compensation Scheme (FSCS), the government guarantees the first £85,000 held under any one banking licence.
Where that gets tricky is that some banking organisations own more than one banking brand, meaning it can be hard to know whether or not you’re protected. For example, HBoS offers savings accounts under the Halifax, Bank of Scotland, Birmingham Midshires and Intelligent Finance brands.
That means only the first £85,000 saved across any of those bank accounts would be protected.
Clear any debts before you start
Everyone should have a rainy day fund in an easy access account in case of emergencies, but if you’re considering saving up a lump sum then make sure you clear your debts first.
For example, even if you’re earning a high interest rate with a market-leading account, such as the Coventry Building Society CallSave Fixed Bond (128), paying 4.75% for five years, you’re still going to be paying at least 7.4% on the very best loan available – a newly-priced Sainsury's personal loan.
That’s simply a waste of money. Once you’ve saved up a decent emergency pot, get on with paying off debt before you start saving in earnest.
Think about offsetting your savings
You’re most likely paying much more in interest on your mortgage than you’re earning on your savings. So, if you have a large pot of savings cash, you could consider offsetting it against your mortgage.
While these deals aren’t suitable for all borrowers, they can dramatically cut the interest you pay.
For example, if you have a mortgage of £200,000 but hold £20,000 in savings offset against it, you only need to pay interest on £180,000 each month – potentially cutting the term of your mortgage by years.
You can still access your savings when you need them too.
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.