Making your savings work harder for you

If you are new to saving, read on to find out how to choose the best account for you and maximise what you earn on the money you save. And if you are already saving – congratulations – doing so is the key to improving your financial resilience and hitting your life goals.

With interest rates close to an historic low, the return that your savings are earning at the moment is also low. However, the Bank of England increased interest rates in December and experts are predicting more rises in 2022, which should be good news for savers. If you haven’t got a savings account, the place to start is with an instant access account – so you can always get at your money if you need it.  To start with you might like the convenience of opening one with your current account provider.  It’s usually super-quick and easy to switch money in and out of your savings via your banking app.

If you opened your savings account some time ago, it is definitely worth shopping around to see if you can improve what your money is earning. With some older instant access accounts paying as little as 0.1%, it’s perfectly possible to find a rate six or more times higher.

Here are a few tips to help you shop around:

• Comparison sites, like Moneyfacts are a great place to start – they’ll help you find the best rates for all types of accounts.
• Don’t just look at brands you’ve heard of or seen on the high street. For example Investec, Marcus and Paragon are all offering market-leading rates at the time of writing – and all are less well known.
• Do check that whatever provider you choose is part of the Financial Services Compensation Scheme (FSCS). That way you’ll get your money back if there’s a problem (up to £85,000 per person per provider).
• Some banks and building societies do special higher rates for their existing current account customers – it is worth checking.
• And on the subject of current accounts. Some pay good interest (usually up to a certain balance) and you might get a bonus for switching to a new provider – some offer £100 or more.
• Instant access accounts are ideal when you first start saving. But once you have more of a savings pot built up, consider whether you can lock some of your savings away for longer in a notice account or bond – which usually get higher savings rates.
• Fixed-rate accounts generally offer better interest rates, but again they do mean locking some of your savings away without access, and you won’t be able to switch out for a certain period – so if interest rates do continue to rise (and many commentators expect them to do so) your account might not be as competitive as it was.
• If you can commit to paying money in each month, regular saving accounts can offer better interest rates – for example 2.35% (at time of writing) compared to 0.67% for the leading instant access account. The amount you can pay in each month is usually limited though.

You’ll also see ‘Cash ISA’ savings accounts (note these are different from ISAs that invest in stocks and shares).  The advantage of ISAs is that they are tax-free – but for most of us, this isn’t a big issue. Nowadays you can earn up to £1,000 a year in interest on savings without needing to pay any tax on it.  Don’t rule cash ISAs out though – if you can find one with market-leading interest rates then go for it! However, it can be worth looking at just because sometimes offer high-interest rates.

If you’ve got a mortgage, check to see if you have an ‘offset’ product. With an offset mortgage, your savings account is linked to your mortgage. You don’t earn any interest on your money, but it reduces the balance of your mortgage by the amount of your savings – so you won’t need to pay interest on that amount. Generally, the interest rate on your mortgage will be quite a bit higher than you’d earn in a savings account, so this can be worth looking at.  You can still access your savings as and when you need to of course.

Wherever you decide to put your savings, remember that setting yourself clear goals for how much you want to save, what for, and when by can really help you build a savings habit.

Finally, a word of warning. Don’t be seduced by high returns ‘promised’ by crypto or bitcoin ‘investments’. Most are little more than gambling and you need to be prepared to lose your money. Stick to savings accounts that are covered by the FSCS, so that you can be sure your money will be there when you need it.

Happy saving!