Essential tips for savers

Struggling to get a decent return on your savings? Follow these top tips…

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In today’s low interest rate environment, getting a decent return on your savings is a challenge. But there are still ways you can ensure that your money is working as hard as possible for you.

Pay off your debts

It may seem strange to talk about debt in an article about savings, but think about it: if you’re paying a higher rate of interest on what you owe than you’re earning on what you save, then pound for pound you’re effectively losing money.

So consider using some of your savings to clear debt, and start saving straight away on interest payments. Just remember to keep a cash reserve in a rainy day fund.

If you’ve got outstanding debt on a credit card, you could save interest by transferring the balance to a card with a lower rate and paying off the debt over a number of months.

Use your ISA allowance

Thanks to the introduction of the personal savings allowance in April 2016, you could argue tax-free ISAs are no longer quite so attractive.

The personal savings allowance means basic rate taxpayers can earn up to £1,000 of savings interest a year tax-free in any savings account, including peer-to-peer and current accounts. Higher rate tax payers can earn up to £500.

However, it’s still worth using this tax year’s ISA allowance of £20,000 as any interest you earn from cash ISAs doesn’t count towards your personal savings allowance.

What’s more, although you need a fairly large savings pot to use up your personal savings allowance, if interest rates rise, you’ll need to save much less to hit the £1,000 or £500 threshold.

Lock into a fixed rate account for higher interest

Fixed rate accounts tend to offer among the highest savings rates as you must usually agree to leave your money untouched for a set period of time.

And the longer you agree to lock your money away for, the more interest you’re likely to earn.

Wesleyan Bank, for example, offers 1.86% AER fixed for one year, so long as you open the account with at least £1,000.

However, if you can tie up your funds for longer, Vanquis Bank pays 2.30% AER fixed for three years. Again, you will need £1,000 to open the account.

Just be wary of locking away your money for too long in case interest rates rise and your money is tied up in an account that is no longer competitive.

Switch your current account

If you rarely go overdrawn and tend to keep a high balance in your current account, make sure you earn interest on it.

Current accounts are also a good alternative to easy access accounts, as you’ll still be able to get your hands on your cash, but you’re likely to earn a better rate of interest.

Check out these deals, including accounts which give you cash incentives to switch.

Get the kids saving

Encouraging your children to put a little bit of their pocket money into savings each month could make a big different to them later on, as well as teaching them how to manage money.

Interest rates on children’s account are often competitive too. Halifax’s Kids' Regular Saver account, for example, pays 4.50% AER fixed for a year if you pay in between £10 and £100 each month.

Move your money when bonus periods end

A number of savings accounts carry short term bonuses that disappear after the first year.

It is therefore imperative to make sure you review your savings again once the bonus goes, and if the account is no longer competitive, you should move your money as quickly as possible.

Offset your savings

Given today’s low interest rate environment, you might want to consider using some of your savings to reduce the amount of interest you pay on your mortgage.

Offset mortgages, as their name suggest, give you the option to offset your savings against what you owe on your mortgage. So, although you won’t be credited with any interest on your savings, you don’t have to pay any interest on the equivalent amount of your outstanding mortgage.

For example, if a borrower has a £200,000 mortgage and £80,000 in savings, they will only pay interest on the difference - £120,000 - enabling the homeowner to reduce the mortgage term by several years.

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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