Boost your saving rates
There’s a savings crisis across the UK. The Bank of England may’ve decided to keep the base rate at 0.5% but it said it could cut it in August, cutting returns for millions of people who’ve worked hard to squirrel away cash. And according to our Money Saving Expert Martin Lewis, that’s just the start. Unless you ACT NOW to boost your savings rates it’s only due to get worse…
The problem isn’t just that the UK rates aren’t going to rise soon. The regulator, The Financial Conduct Authority has revealed that £160billion is sitting in savings accounts earning under a spit worthily low 0.5%. Even if your savings once paid a high rate. Do not assume they do now. Check what rate you’re getting.
The top UK easy access account now pays just 1.26%, while a year ago it was 1.6%, and two years ago it was 1.65%. The direction of travel continues to be down, with many top rates being cut all the time. So if you’re one of the millions of people who’ve worked hard to squirrel savings away, more than ever, you need to make your money work harder for you.
The start point is to ensure any expensive debts are cleared. After that here’s my five quick tips to boost your savings. For full help and best buys see Martin’s ‘Full top savings guide’.
Don’t worry about savings tax.
Since 6 April this year, the start of the new Personal Savings Allowance means that for most people all savings interest is tax-free. Previously unless you were saving in an ISA, when you earned interest the taxman took a bite – so for every £100 interest earned as a basic-rate taxpayer you only actually get £80 (higher-rate get £60). But now all basic-rate taxpayers can earn £1,000 in interest and higher-rate £500 before any tax is paid (additional rate tax-payers don’t get anything) – so considering where rates are at the minute that’d take around £75,000 before you even hit that. Therefore, for most of you just focus on what pays the highest rate, rather than worrying about sticking it in an ISA as it’s tax-free.
Earn 3% easy access on up to £20,000 (£60,000 if a couple).
For big savings by far the best payer is the Santander 123 current account, which pays 3% AER interest if you have between £3,000 to £20,000 in it. There’s a £5 a month fee, but for most that's easily covered by the up to 3% cashback it gives if you pay your bills by direct debit from it. Yet even without the cashback, if you have around £8,000 or more in it for most it beats all other accounts.
Everyone can get one (providing you pass a credit check), but couples can also get a joint one. So you can get one, your partner can get one and you can have a joint one, so that’s three between you meaning you can save £60,000. Though as it's a bank account each account needs to meet its terms: paying in £500 a month and having two direct debits coming out.
If you've less to save, other bank accounts pay high rates too. The TSB Classic Plus pays 5% AER on up to £2,000 or Club Lloyds pays 4% AER on up to £5,000. Again with these you’ll need to meet its minimum criteria to get it.
Earn up to 6% on smaller amounts with regular savings.
With these you can earn huge interest but it’s on small amounts that you put aside regularly, around £300 a month. First Direct, HSBC and M&Spay 6% AER interest fixed for a year, but you can only get it if you bank with it. If you bank with Nationwide or Santander, they also have regular savers paying slightly less at 5%, though you can put £500.mth in with Nationwide. The top payer that anyone can open is Leeds BS at 3.05%.
Never owned a home? Get a 25% savings boost.
If you're over 16 and a first-time buyer, or hope to be in the future, saving in a Help to Buy ISAs is a no-brainer. It launched in December last year, and let you save up to £200 a month in it (£1,200 in the first month). Then when you use the money towards a mortgage deposit the state adds a 25% bonus on top, up to a maximum £3,000.
The top payer is from smallish Buckinghamshire BS at 3% or to open online the larger high-street Bank Halifax pays 2.5%. Both rates are clean, so you’ll have to keep an eye on them regularly to check the rate hasn’t dropped. If it does you can transfer it in to another higher paying Help to Buy ISA.
If you don’t need access, lock savings away to earn 2%.
If you're willing to forgo access to your money, you can earn more with a fixed interest rate. But it’s a fine balance. You might not want to fix for too long because if rates rise in the meantime you’ll lose out. The top one-year and two-year fix is fromCharter Savings paying 1.79% AER and 1.91% AER, alternatively for three years Bank of Cyprus pays 2% AER.
Alternatively, you can earn more in sharia compliant savings. Anyone can open these, but instead of interest you get ‘expected profit’ – it's always paid out, though by definition it's not certain. Al Rayan Bank pays 2.02% for two years and 2.32% for three years.