Earn more on your current account
Plenty of us are guilty of leaving savings languishing in our current accounts, even though they might be earning little or no interest.
However, it is possible to earn 5% on money held in your current account with Santander’s Preferred Current Account.
This market-leading account pays 5% on balances up to £2,500 for the first 12 months, and you earn £100 cashback when you switch. Based on a £1,000 average balance, you could earn £50 a year from this account. However, you must pay at least £1,000 into your account each month to be eligible.
Easy access needn’t mean low interest
If you need to keep your savings readily accessible, it doesn’t mean you have to earn paltry rates of interest.
Nationwide Building Society’s market-leading MySave Online Plus account for example, pays an impressive 3.05% annual interest before tax on a minimum investment of £1,000. While you can only make one penalty-free withdrawal a year, at least you know you can get your hands on your cash in the event of an emergency. This rate includes a 1.51% bonus for the first 12 months, so you may want to move your money at the end of this period.
If you want to be able to access your money more frequently, then Northern Rock’s e-Saver Issue 5 account pays 3.01% annual interest on a minimum investment of £1,000. This rate includes a 1.50% bonus for the first year. Alternatively, ING Direct’s Savings Account pays 3% on a minimum investment of £1 and you can make unlimited withdrawals without penalties. While this rate doesn’t include a bonus, it is only guaranteed for a year, so again you may want to move your money when the guarantee ends.
Use your ISA allowance
If you haven’t used your Individual Savings Account (ISA) allowance this year, you should do so as soon as possible, as it means returns will be tax-free. You can save up to £5,340 into a cash ISA this tax year, and the same amount into a stocks and shares ISA.
The AA’s Internet Access ISA, for example currently pays a competitive 3.35% annual interest on a minimum investment of £500. This rate includes a 1.65% bonus for the first year, so you may want to move your money after 12 months.
Other competitive ISAs include Nationwide’s e-ISA, which pays 3.10% annual interest tax-free, and can be opened with just £1. However, you will need to open a card account with Nationwide before applying for the e-ISA. Halifax’s ISA Direct Reward account pays 3% again on a minimum investment of £1, and Halifax qualifying current account holders can earn an additional 0.20% interest, boosting their rate to 3.20% tax-free a year.
Consider stocks and shares
Savers who are prepared to accept a level of risk may want to consider investing in stocks and shares for higher potential returns.
However, investing in equities is not for the faint-hearted and you must be prepared to leave your money untouched for at least five to ten years. Always seek professional independent financial advice before investing.
One way to smooth market volatility is to drip feed money into stocks and shares each month. That way you buy more shares when prices are low and fewer when prices are high.
Fix your savings for higher returns
You can earn higher rates of return on your savings if you are prepared to lock up your money in a fixed rate account.
You must, however, be certain you won’t need to get your hands on your cash during the fixed rate period, as the vast majority of accounts won’t permit withdrawals.
For savers looking for a one-year bond, FirstSave pays an impressive 3.50% on a minimum investment of £1,000. If you don’t have that much to put away, then Sainsbury’s Finance’s 1 Year Fixed Rate Saver account pays 3.35% on a minimum investment of £5,000.
Secure Trust currently offers the market-leading rates on two and three year fixed term bonds, paying 4.01% and 4.30% respectively. You need a minimum investment of £1,000 to open either of these accounts and you cannot make withdrawals during the fixed rate period.
If you want to fix for even longer, then the AA Internet 5 year fixed rate savings account pays 5% on a minimum investment of £1. Withdrawals are allowed, subject to loss of interest on the amount withdrawn.
Bear in mind that if you are considering a long term fixed rate savings account, while rates may look very competitive now, they may not be quite as appealing in a year or two if interest rates have risen during this time.
Inflation is the silent enemy of savers, eroding the value of your savings pot. But there are accounts available which promise to beat inflation. NS&I’s recently relaunched index-linked savings certificates, for example, pay 0.5% above the Retail Prices Index, which is the higher of the two inflation measures used by the Government and currently stands at 5.2%.
However, the accounts run for five years, so they aren’t suitable for anyone who wants easy access to their cash. The minimum you can invest is £100, and the maximum amount you can invest is £15,000. You don’t pay any tax on any gains.
Use social lending companies
Social lending firms represent a good opportunity for consumers looking to maximise their savings pots. These either lend to other individuals or small businesses – banks are sidestepped so those willing to lend get great returns and businesses or individuals get lower cost loans.
At fundingcircle.com, for example, you lend to lots of creditworthy businesses to spread your risk, and can currently earn an average yield of 8.3%, before fees, plus 0.5% cashback on top for a limited period. Zopa.com, which lends to individuals, says the average rate enjoyed by its lenders over the last 12 months is 7.3%, after fees.
Kevin Mountford, head of banking at moneysupermarket.com commented: "With interest rates so low, social lending firms can be a very attractive proposition for consumers looking to generate some decent returns on their savings pots.”
However, remember that none of the money lent through one of these schemes will be protected by FSCS, so there is a risk the depositor could lose some or all of their initial investment should the borrowers default or the firm itself go bust.
Look at tracker accounts
If you don’t want to risk being in a savings account which doesn’t pass on any interest rate rises, you should consider an account which tracks the Bank of England base rate. That way, when interest rates do start to rise, you will automatically benefit from higher returns on your savings.
Santander’s market-leading 1 Year Tracker Bond, for example, is guaranteed to track 2.6% above the Bank of England base rate until the beginning of June next year. You need a minimum investment of £10,000 to open this account, and no additional deposits, withdrawals or closures are allowed during the one-year term.
Watch for bonuses
Most market leading easy access savings accounts include bonuses for the first twelve months, which means you need to make a note in your diary of when the bonus ends and move your money then.
Don’t discount an account just because it has a bonus – often accounts with bonuses provide the best rates of interest, but you just need to be vigilant and move your money when the bonus goes.
Make regular savings
You can earn some great rates of interest if you can commit to paying into a savings account regularly, and it’s a good way to get into the savings habit. Existing HSBC current account customers with Premier, Advance, Graduate Advance or Passport accounts can earn a whopping 8% annual interest with HSBC’s regular savings account, provided they pay in between £25 and £250 a month.
If you don’t have an HSBC current account, Santander’s Fixed Rate Monthly Saver account pays 4% for 13 months to savers who commit to pay in between £20 and £250 a month.
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.