The news over the last few months has been relentlessly grim. However, if you’re a saver, after a decade of rubbish rates you can finally make your money work for you. Here’s a brief guide.
Making the most of your savings
Savers have had a torrid ten years, with many people moving their money to investments and other schemes that contain a significant element of risk. This resulted in lots of people discovering to their cost that they could lose a big chunk of their savings – or be defrauded in some circumstances.
So let’s go back to basics. Your bank will probably have increased its basic account interest rate, so have a look at what you’re currently getting. Just switching accounts can get you a much better interest rate and some businesses are offering incentives of up to £200 to transfer your balance over or pay your wages into the new account.
Because it’s been so long since savings accounts were worth looking at, forget everything you knew and start over. It’s actually really easy to set up a savings account online – including the identification procedures.
Don’t rush into any decisions though. Look at the comparison sites (MoneySavingExpert has a great overview of the best rates) and have a think about what account works best for your lifestyle.
The rate you get increases the longer you ‘lock in’ your money. So if you don’t touch your cash for three or five years, you’ll get a better rate of interest. Impressively, some of these ‘notice’ accounts lock in your cash for just a month or even seven days.
So why not move a chunk of your savings to a longer notice period account and put the rest into a much shorter notice account so you can access it in emergencies? Saving rates are now heading north of 5%, with even the shortest notice period rates upwards of 2%. Some accounts offer unlimited withdrawals, others offer less than two a year.
Long the preferred option for the cautious saver, the humble cash ISA nose-dived in popularity when rates were rubbish. But cash ISAs are now firmly back on the saver’s agenda.
They are still a tax-free way to save money, and you can put up to £20,000 into each one, each year. If you’ve not had an ISA before the other key factor is interest continues even if you’ve saved up to the maximum allowance each year and compounds (interest increases on the sum invested, plus the previous interest in total).
There are a wide range of ISAs available, designed for people at different stages in their life and different needs. For people up to the age of 40, a lifetime ISA gives a 25% bonus on the money invested if you put it towards purchasing your first home. For young people despairing about mortgage rates and massive costs, this is a sensible way to store your house deposit until your dream home hits an affordable level.
For those people who persevered with ISAs during the fallow interest years, the good news is you can transfer or consolidate them. I have heard a few complaints about problems with the transfer process, so make sure you ask both the existing and new providers about what will happen next, timescales and any impact on interest or bonuses.
If you are lucky enough to be in the top 5% of the population in terms of earnings, you might find that the tax treatment on your savings is higher. But for the vast majority of people, this won’t be an issue.
The joys of regulation
Above all else, better saving interest rates mean we can return to regulated financial products rather than being forced towards high-risk or questionable investments. Savings accounts and ISAs are fully regulated, which means you can go to the Financial Ombudsman Service for free if you have a problem.
Martyn James is a leading consumer rights campaigner, TV and radio broadcaster and journalist.