As we all know, it’s tough to make any decent returns on savings deposits at the moment. It’s become more important than ever to shop around if you want to secure the best deal.
So, how can you make the most of your savings? Here’s a few pointers.
Savings & Tax
Ideally, you want the returns on your savings to at least match the rate of inflation after any tax has been deducted.
So, if inflation is at 2%, a normal rate taxpayer will need to earn at least 2.5% on their savings for their purchasing power to remain the same. A higher-rate taxpayer will need even more.
This is where an ISA comes in handy. An ISA (or individual savings account) allows you to save a certain amount tax-free every year. In July 2014, the individual allowance rose to £15,000, which could take many savers out of tax altogether.
Easy Access or Fixed Term?
Cash ISAs and traditional savings accounts work in the same way. There are easy-access options and fixed-term options.
Easy-access accounts offer the most flexibility. Sometimes, these accounts are propped up by a temporary bonus rate that lasts for just a year. So you may have to chop and change regularly to maintain a competitive rate.
Fixed-term options offer a guaranteed annual rate of interest, so you’ll be unaffected by any changes to interest rates.
The longer you lock away your funds, the better the returns tend to be. But you’re not normally able to add to fixed-term products or withdraw from them. If providers do offer flexibility here, it is normally reflected by a lower rate of interest.
If you prefer to save a little every month, you could benefit from a regular saver account. These accounts tend to offer higher rates because you start from scratch and you’re limited to the amount you can add every month.
Alternatively, have you thought about leaving your savings in a current account? It’s now possible to earn higher rates this way and you’ll maintain full access to your cash.
Now that it’s possible to switch current accounts in just seven days, they now represent another strong option to help savers make the most of their funds.