Check your rate
We know that for most people in the UK, their savings rates are about base rates or below, and yet you can get four, five or six times by looking around for alternatives, but first of all you’ve got to find out what rate you’re on. Banks don’t make it easy, so make that effort – go into a branch, look online, call up – make sure you know exactly what rate you’re getting on savings. I guarantee most of you can do better.
In today’s market, it gets difficult for savings manufacturers to develop really good strong prices, but we know that there’s ways that they can do this. Very often they use bonuses, so what that means is that they will load up the rate for a limited period of time, generally about 12 months. Many people frown upon these, they think that banks are looking to hook you in, and then after a period of time the rate drops off. I’d say actually take advantage and play the banks at their own game. Take these rates, look at the bonus - just make sure you’re disciplined. Make a note in your diary that in 12 months time you’re typically going to have to move your money around again - but take advantage now, you’ll get some benefit.
Generally in savings the best rates come from what we call fixed term bonds. The rates fixed, but you need to lock your money away for a given period of time. Check carefully, but if you believe some of your money you can afford to lock away the chances are that you will get far better deals.
Some people think that base rate will increase at some stage, no doubt it will, but economists are suggesting it’s going to be quite some time, so if you can take advantage now, whether it be 1 year, 2 year, 3 year, 4 year or even 5 years, lock some money away but make sure you keep some money available just for a rainy day.
Fully recognise that for households now throughout the UK, times are really tough. When we keep talking about savings, we’re all saying “well that’s all well and good, but we’re struggling to even pay our bills”. All that I would suggest is that we try and think of our savings habit. Very often we wait until the end of the month and see what money we’ve got left, but that in itself is very difficult. I would just ask that saving little, or often, is better than saving nothing at all. So at the start of the month, when you pay your bills, try and think of putting a little bit aside towards a savings account.
If you can be really disciplined, things like regular savers allow you to transfer £20, £25 into regular savings account, and then that money’s available at typically the end of 12 months. But if you can get into that habit, it’s going to be far better, and we all need a little bit of money for a rainy day, because the chances are that those rainy days will come sooner, if not later.
Use your ISA allowance
Unfortunately, most of us have to pay tax, whether that is standard rate or higher rate, and we have to pay tax on the interest we earn on our savings. As difficult as it is there are ways you can actually offset some of this using an Individual Savings Account, or what we fondly call an ISA. Make sure that you use your full allowance, that’s £10,680 now as long as you consider stocks and shares ISAs. If you’re only wedded to cash, then £5,340 every year can be put into an ISA account and you protect the interest from the tax man.
So what I would suggest to you, if you’re a taxpayer, whether it’s standard or higher rate the first account you take is an ISA, and the last one you dip into is your ISA. Make sure that money is working as hard as it can. Take out your ISA allowance - don’t use it, you’ll lose it.
We’re well aware, we read it in the news, we see it on the TVs – there is global economic uncertainty, particularly across the Eurozone, very unsettling for savers. Thankfully we’ve now got a common compensation scheme across Europe. What that means is that €100,000 - or in the UK, £85,000 – gives you protection from the Government. So make sure that -particularly now as we’ve seen a lot of consolidation amongst banks and building societies – that you’re not overly exposed.
So as an individual you don’t have more than £85,000 with one institution, or on a joint account, £170,000. If you do, potentially – and I say potentially – you’re at risk, so move some of that money around. Mix your savings and ensure that you remain, or your savings remain, safe.