Keeping fluid: As the gap between best and worst rates widens, savers need to stay on their toes
Savers can finally earn interest of up to 5 per cent – several times higher than at the start of the year. But you must be smart, not rely on high street banks and use tricks to maximise interest you receive.
Some savings deals are improving, but rates are not rising across the board. As the gap between best and worst rates widens, savers need to stay on their toes. Here are eight tricks to help:
1) Set up regular payments
Some of the best rates are offered on regular savings accounts designed to encourage users to put aside a regular sum every month. However, these accounts tend to have a maximum limit on how much you can deposit in any one month of anything from £ 50 to £ 300.
There is a useful trick that allows even savers with existing nest eggs to take advantage of them. You will need two savings accounts. Pick a competitive easy-access savings account, as well as a top-paying regular savings account.
Then you must set yourself a reminder to make a regular monthly payment for the highest monthly amount permitted from the easy-access account to the regular savings account.
For example, you could set up a regular payment from a best-buy easy-access account from Chase Bank, which pays 1.5 per cent, into the top-paying regular saving account from Saffron Building Society, which pays 2 per cent.
You can then transfer up to £ 50 a month from Chase to the Saffron regular savings account, adding up to £ 1.62 in extra interest a year.
Although not much, some providers are more generous if you use their services for both accounts. For example, if you already have a First Direct savings account, you can open a Regular Saver Account and earn 3.5 per cent interest for a year on up to £ 300 paid in each month.
Existing Cambridge Building Society members can earn 5 per cent on deposits of up to £ 250 a month in its regular savings account. You must be a Cambridge savings or mortgage customers for three years to qualify for this deal.
2) Embrace banking on your smartphone
Some of the best rates are available only if you are prepared to look beyond high street names and manage your account on a smartphone. The best instant-access rate available anywhere is 1.5 per cent from Chase Bank and is app-based.
Other top rates available on app-based accounts include 1.25 per cent from Atom Bank and 1.2 per cent from Zopa. In contrast, one of the best rates offered by a high street name is 0.35 per cent for Nationwide’s Flex Instant Saver.
3) Use current accounts for savings too …
Some current accounts pay better rates than those designed for savings. For example, Nationwide’s FlexDirect account pays two per cent on balances up to £ 1,500 for the first year. Virgin Money pays 2.02 per cent on balances up to £ 1,000 in its M Plus current account.
However, Sarah Coles, personal finance analyst at broker Hargreaves Lansdown, warns: ‘Our research shows that one in five people who have put savings into a current account have accidentally eaten into this money.’
4) … But make sure you switch to the best
Changing your current account can earn you cash rewards. Andrew Hagger, from consumer website Money Comms, says: ‘Banks are eager for new current account customers and many offer cash bribes to entice you to switch.’
For example, First Direct offers £ 150 to new customers. Nationwide is offering £ 125 to move to its current account.
If you switch using the Current Account Switch Guarantee, your new bank will switch all payments and transfer the balance.
5) Earn more by locking your money away
The highest-paying savings accounts often require you to lock money away for months – if not years. For example, Al Rayan bank is paying 2.21 per cent on its 12- month bond, although it has a minimum opening balance of £ 5,000.
You can get up to 2.8 per cent on a five-year fixed rate bond with Shawbrook Bank.
Tread carefully before locking money away for a long time. As interest rates rise, fixed rates are likely to improve in the future.
Those seeking greater flexibility might also consider the Zopa Smart Saver account. This allows you to earn different rates within one account depending on how much notice you require before getting access to a different portion of your money.
You get a competitive 1.2 per cent on your instant access balance, then Zopa offers rates up to 1.45 per cent on savings you are happy to lock away for up to 95 days.
6) Controversial … but maybe avoid Isas
Many savers default into putting their money into a cash Isa rather than a savings account because the interest earned is shielded from tax. But the best savings accounts tend to offer better rates than cash Isas. The top rates on a variable rate cash Isa are 1 per cent, as offered by an annual interest paying deal from Nationwide.
Although you miss out on the tax-free wrapper with a standard savings account, most people rarely pay tax on these anyway.
This is because as they have a personal savings allowance, which means a basic-rate taxpayers can earn £ 1,000 in interest a year before paying tax.
The personal savings allowance drops to £ 500 for higher rate taxpayers and disappears for additional rate payers.
7) Seek a boost from the Government
If you are on a low income, you may be eligible for a Government boost on savings worth 50p for every £ 1 saved over four years.
The Help to Save scheme is open to people entitled to Working Tax Credit or receiving Universal Credit.
You can pay between £ 1 and £ 50 every month into a qualifying account to receive the bonus.
Go to www.gov.uk/get-help-savings-low-income for details.
8) Do not keep too much in cash savings
A rainy day fund is invaluable in the event of an emergency. However, if you have savings beyond that, you may be better off investing in stocks and shares as these tend to outperform savings in the long term.
The value of investments will rise and fall – although you can moderate risk with safer funds.
But the value of savings is guaranteed to fall in real terms this year as there are no savings rates that come close to beating inflation.
Even if your savings are earning 5 per cent interest, they will still buy less in the shops by the end of the year due to the soaring cost of living.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS
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