Stay fluid: As the gap between the best and worst rates widens, savers need to stay vigilant
Savers can finally earn up to 5% interest, several times more than at the beginning of the year. But you have to be smart, not rely on big banks and use tricks to maximize the interest you receive.
Some savings offers are improving, but rates are not increasing in all areas. As the gap between the best and worst rates widens, savers need to remain vigilant. Here are eight tips to help you:
1) Set up regular payments
Some of the best rates are offered on regular savings accounts designed to encourage users to set aside a regular amount each month. However, these accounts tend to have a maximum limit on how much you can deposit in a month, from £50 to £300.
There is a useful trick that allows even savers with existing savings to take advantage of it. You will need two savings accounts. Choose a competitive, easy-to-access savings account, as well as a top-paying regular savings account.
Next, you need to set yourself a reminder to make a regular monthly payment for the highest monthly amount allowed from the Easy Access Regular Savings Account.
For example, you can set up a regular payment from an easy-access Chase Bank account, which pays 1.5%, to Saffron Building Society’s highest-paying regular savings account, which pays 2%.
You can then transfer up to £50 a month from Chase to the regular Saffron savings account, adding up to £1.62 in extra interest a year.
Although few, 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 savings account and earn 3.5% interest for a year on up to £300 paid each month.
Existing members of the Cambridge Building Society can earn 5% on deposits of up to £250 a month into its regular savings account. You must be a Cambridge Savings or Mortgage customer for three years to qualify for this offer.
2) Embrace banking on your smartphone
Some of the best rates are only available if you’re willing to look beyond the big names and manage your account on a smartphone. The best instant access rate available anywhere is 1.5% from Chase Bank and is app-based.
Other highest rates available on app-based accounts include 1.25% from Atom Bank and 1.2% from Zopa. On the other hand, one of the best rates offered by a high street name is 0.35% for Nationwide’s Flex Instant Saver.
3) Also use current accounts to save…
Some current accounts pay better rates than those designed for savings. For example, Nationwide’s FlexDirect account pays 2% on balances up to £1,500 in the first year. Virgin Money pays 2.02% on balances up to £1,000 in its M Plus checking account.
However, Sarah Coles, personal finance analyst at brokerage Hargreaves Lansdown, warns: “Our research shows that one in five people who put savings into a checking account accidentally ate up that money.
4) …But be sure to upgrade to the best
Changing your checking account can earn you cash rewards. Andrew Hagger of the consumer website Money Comms says: “Banks are hungry for new customers with a current account and many offer cash bribes to entice you to switch.”
For example, First Direct offers £150 to new customers. Nationwide is offering £125 to switch to its checking account.
If you switch accounts using the Current Account Switch Guarantee, your new bank will switch all payments and transfer the balance.
5) Earn more by locking your money
The highest paying savings accounts often require you to lock up money for months or even years. For example, Al Rayan Bank is paying 2.21% on its 12 month bond despite having a minimum opening balance of £5,000.
You can get up to 2.8% on a five-year fixed rate bond from Shawbrook Bank.
Be careful before locking up money for a long time. As interest rates rise, fixed rates should improve going forward.
Those looking for more flexibility can also consider the Zopa Smart Saver Account. This allows you to earn different rates within the same account depending on how much notice you need before you have access to a different part of your money.
You get a competitive rate of 1.2% on your instant access balance, then Zopa offers rates of up to 1.45% on savings you’re happy to lock in for up to 95 days.
6) Controversial…but maybe avoid Isas
Many default savers put their money in a cash Isa rather than a savings account because the interest earned is tax sheltered. But the best savings accounts tend to offer better rates than cash Isas. The highest rates on a variable rate cash Isa are 1%, as offered by an annual interest payment agreement from Nationwide.
Although you miss the tax-exempt package with a standard savings account, most people rarely pay taxes on them anyway.
This is because as they have a personal savings allowance which means a basic rate taxpayer 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 taxpayers.
7) Ask the government for help
If you are on a low income, you may be eligible for government savings support worth 50 pence for every pound saved over four years.
The Savings Assistance scheme is open to people entitled to the Labor Tax Credit or the Universal Credit.
You can pay between £1 and £50 each month into an eligible account to receive the bonus.
Visit www.gov.uk/get-help-savings-low-income for more details.
8) Do not keep too much money in savings
A rainy day fund is invaluable in an emergency. However, if you have savings beyond that, you might be better off investing in stocks and shares, as these tend to outperform savings over the long term.
The value of investments will rise and fall, although you can moderate the risk with safer funds.
But the value of savings is guaranteed to fall in real terms this year because there are no savings rates that come close to beating inflation.
Even if your savings are earning 5% interest, they will still buy less in stores by the end of the year due to the skyrocketing cost of living.
THIS IS MONEY’S FIVE OF THE BEST SAVINGS OFFERS
Some links in this article may be affiliate links. If you click on it, we may earn a small commission. This helps us fund This Is Money and keep it free to use. We do not write articles to promote products. We do not allow any business relationship to affect our editorial independence.