UK savers are protected for up to £85,000 per person per financial institution.

And despite a multi-million-pound television advertising campaign designed to raise awareness about the guaranteed compensation level for savings UK deposits, only 3% of people are aware of the measures at the close of 2011, according to the Financial Services Compensation Scheme (FSCS).

FSCS Advert...? (Nope. Me neither)

[Read more at Which4U]

Inflation and your savings: fragile in nature

There have been some significant moves in the market for savings products this week, mostly driven by concerns about inflation.

Santander has looked to muscle into the space vacated by NS&I, who announced a withdrawal of their popular inflation-linked Investment Accounts in November.

Following their self-acclaimed ‘revolutionary’ up-front interest bond, Santander’s Inflation-Linked Savings Bond pays the rise in the Retail Price Index over a six-year period.

[Read more at Which4U]

Another area of comparison is to be found in what we might call household efficiency or discipline savings. How much could we be saving by organising our food shopping more carefully to reduce wastage, or by switching off our electrical devices rather than leaving them on standby? Quite a lot, as it happens.

[Read more at Which4U]

It has been estimated that savers at the basic level of tax would need to be investing at a rate of at least 6.5% to avoid losing out in real terms, and greater still for higher rate taxpayers. However, the low base rate set by the Monetary Policy Committee to aid growth is leaving very few products available at a percentage that can offset the high inflation rate.

What are the options?

[Find out at Which4U]

This is the opinion of the head of consumer finance at Love Money, Ed Bowsher.

Mr Bowsher has urged future scholars to take the time to find out if they are protected before moving into their home-from-home, so as to avoid any potential confusion or unexpected high costs whilst studying.

The expert went on to say that “students should also check their parents’ home insurance policies,” adding that “some policies will cover students even if they’re living away from home”

This was later backed up by Mike Powell, insight analyst for general insurance at Defaqto, who has also urged those joining university for the 2011/12 academic year to look into whether or not they are protected by their parent’s insurance policies.

Research carried out by Defaqto showed that, while 85 per cent of contents and buildings insurance packages will cover the belongings of a student while they are at university, the other 15 per cent do not.

This news could mean that student account holders may not be covered and this could potentially become very costly if their possessions should be damaged, lost or even stolen.

Mr Powell went on to say, “As always, the devil is in the detail – so students and parents need to check what – if any – cover their family home insurance will provide.”

Mr Bowsher finished by expressing that he feels that students often do not realize just how valuable their personal belongings (laptops and smartphones) are, and therefore neglect to take out proper insurance on them.

The comments expressed by Mr Bowsher are reminiscent of those given by Annie Shaw of Cash Questions, who urged future scholars to consider taking out insurance policies sooner rather than later to avoid being caught out in the event of their possessions being damaged or going missing.

During August (18^th), the insurance company Aviva called on their customers that were heading to university to complete a degree to take out effective cover for all of their gadgets and expensive items.

However, if another recent study is to be believed, this advice may go unheeded by the majority of students.

At least this is the opinion of John Baker, head of general insurance for Nationwide, who believes that a high number of future scholars in the UK have a lax attitude towards signing up for insurance products such as buildings and contents.

Research published at the beginning of September by the financier revealed that around 40 per cent of students in higher education will take over £500 worth of personal possessions with them when moving away from home to their chosen university.

However, it seems that covering their belongings is not the top of the agenda for most students. A survey conducted by the company showed that the majority of students questioned were more concerned with making friends and joining social groups.

Mr Baker went on to indicate that 15 per cent of university attendees have fallen victim to theft, which clearly shows that taking out an effective insurance policy is vital for future scholars.

He later added, “Rather than ignoring it, this is something that students should take account of and should do something about.”

This is the opinion of the director for independent advisory firm Ark Financial Planning, Phil Perry – who has insisted that it is possible for people without large funds available to them, to plan ahead when it comes to their financial future.

Mr Perry went on to explain that the most suitable products for individuals who have “absolutely no savings whatsoever” are “deposit-based” accounts, as these tend to provide a more flexible way to bank, in terms of allowing the account holder easy access to their money.

“The first port of call would always be an ISA, depending upon the client’s tax position of course. There are many facilities out there these days [where you can] find the best scheme,” noted Mr Perry.

In addition to this, the financial expert then went on to state that instant access packages are usually the most worthwhile deal for a consumer to take out, as it avoids having to tie up finances for long periods of time.

He went on to explain that it is not currently a good idea to store money in deposit-based funding for more than a year at a time, as there is a widespread expectation that the Bank of England will opt to boost interest rates at some point in the next 12 months.

The Bank’s Monetary Policy Committee has voted to maintain the base rate at 0.5 per cent for 29 months in succession, but many financial analysts feel this trend of keeping the figure at this historically low level will come to an end sooner rather than later.

Mr Perry finished by stating that “if that is the case and you have fixed yourself for something longer, realistically you may fall behind the times”

One spokeswoman for online resource Moneyfacts, believes that those wanting to go on to higher education should consider taking a year out in order to save money in ISAs. She went on to say that, where possible, students should priorities building up savings accounts before embarking on their degree course.

Currently, most British students will be getting prepared to start the 2011/12 academic year which starts in September, and the majority of these will more often than not plan on getting through their time at university on their student loans and in some cases an overdrafts on student accounts.

This can be very hard to do with tuition fees now averaging at the top £9,000 on top of the need to pay for groceries and utilities.

However, taking the advice of the Moneyfacts experts, by planning ahead and saving up for a couple of months prior to your course beginning, students can provide themselves with a strong financial safety net that could help them to avoid serious financial debt on completing their course.

“It is a good idea if you can do it – if you can put money aside and you’re prepared to do that, especially going forward when everyone’s going to be on the news about the new fees structure,” she went on to say.

However this advice does come with a warning. Those who decide to take out 12 months to save are likely to be “caught by the new fees next year”, which in turn means an additional cost for university may detract from students savings significantly.

Despite this, the spokeswoman indicated that having a year’s worth of saved money is never a bad thing and may allow students to get through their time at university without having to lend as much money.

Research published on August 17th by Endsleigh showed that of the students they asked, 74 per cent felt dismayed at the prospect of having to budget effectively during their time at university, and 33 per cent stated that they were concerned about having to pay bills for utilities such as gas and electric.

UK interest rates have been kept at the record low of 0.5% since March 2010 and there are no signs that it will improve any time soon.

This means that banks are continuing to struggle to offer savers a decent rate on their savings.

However, despite the low base rate there are ways in which savers can boost the earnings from their surplus funds, some adding in the element of risk.

Tax Free Savings Accounts

Some people may be surprised learn that the earnings made from the interest paid on savings accounts and investments is taxed.

The income tax percentages depends on your annual earnings, but can be up to 50% which means you would be losing half of any returns to the tax-man.

There is away to avoid paying income tax on at least some of your savings, so the first avenue you should explore when looking for a home for your savings is the Individual Savings Account (ISAs).

These unique savings accounts allow all UK individuals to save up to £10,680 a year (running along side the tax year from April – April) and pay no income tax on your earnings.

This tax break provides the means to build up a substantial savings pot over time by adding to it each year.

ISAs come in two forms, Cash ISAs – which work in the same way as savings accounts or fixed rate bonds with little or no risk; and Stocks and Shares ISAs – which offer the potential to earn significantly higher returns while paying no tax on your earnings.

Savers can use invest up to half of their annual tax-free allowance into a cash ISA, while the remaining £5,340 can be invested into a Stocks and Shares ISA; or alternatively those with a keener investment interest may be happy to hear that they are eligible to invest the full allowance into a Stocks and Shares ISA.

Cash ISAs offer a number of features designed to suit different needs, so whether you require access to your savings or you are happy to lock them away in order to benefit from higher rates, there are plenty of options available.

ISAs work best when they are left to grow, so it will pay off to leave your savings untouched. Any funds that are withdrawn can’t be replaced, so once your ISA allowance has been used up, you won’t be able to add any funds until the following tax year.

Shopping around

Despite rates failing to rise for 15 months, there are still some attractive deals to be had, with some offering respectable rates.

Comparing a number of accounts offered through a number of providers will allow you to choose the most appropriate account for you, while also getting the best rates. Finance comparison website Which4u.co.uk compares a range of ISAs from several different providers, both instant access and fixed rate, allowing you to compare the best deals on offer.

What to remember

The higher paying ISAs usually come with an introductory bonus rate which expires after 12 months, so it’s essential to stay on top of your savings account and switch to a new provider once the rate drops.

Transferring ISAs is easy, but you must not attempt to move the funds over yourself, as doing so would cause your tax free wrapper to be lost. You should also check with your new provider to make sure that they accept transfers from previous ISAs.

But nowadays there’s a much more obscure danger that our savings face, with the value of our funds falling from under our very noses.

With the lowest interest rates on record and an unusually high rate of inflation, savers are struggling to stop their funds from losing value. Inflation measures the rate at which the cost of things is increasing, and therefore if you fail to get a higher savings rate than the current inflation rate, your money won’t be worth as much in years to come.

For example, the current inflation rate in the UK is 4.5%, which means that something that cost you £100 last year, will cost you £104.50 today, so if your savings rate is below 4.5% your savings will be worth less next year.

Another thing to keep in mind when finding the most profitable method of storing your finances is that earnings from any standard savings account are subject to income tax, so taking this into consideration, you will actually need to keep your interest rate above the inflation rate by your income tax rate (up to 50% depending on your salary).

One way to avoid paying tax on your returns is through Individual Savings Accounts (ISAs). These special accounts allow you to save and invest up to £10,680 every year while paying nothing to the tax man. Up to half of your allowance can be put into a cash ISA while the rest can be invested into Stocks & Shares ISAs (or up to the full amount into investment ISAs), allowing investors to earn tax free returns on their investments.

Another way to keep your interest rates as high as possible is by use of fixed rate bonds. These accounts require you to lock your money away for an agreed period of time, offering you a rate that is fixed until the bond matures.

This type of account offers a very low risk investment – since the only money you’re putting on the line is the interest. In most cases, the longer the term, the better the rate offered. However it may not be a good idea to go for anything longer than a couple of years, as rates have bottomed out so can only really go up.

Share dealing accounts are another avenue to explore, especially by those that are keen to boost their returns by upping the game and adding an element of risk.

These investment accounts are offered by a number of high street banks. Your money is invested in several places that have been identified as ‘a safe bet’ by the experts, so although there is the possibility that you could lose money, there is also a greater chance of increasing your returns.

The great thing about most share dealing accounts is that they allow you to tie in your ISA allowance, which means that you can potentially invest up to £10,680 per year and pay nothing in tax on your returns.

Whatever you decide with your savings, remember to keep your returns as close to or above the rate of inflation.

Generally speaking, the best ISA rates available on today’s savings market come with a catch – the high rates on offer are likely to fall after 12 months.

This is due to providers offering bonus rates in order to attract more custom. However, once the bonus rate expires, the level of interest paid on your savings is likely to fall significantly, leaving you earning less than you could be elsewhere.

A report from the Office of Fair Trading found that just 11% of savers that hold an ISA will switch to a new provider each year.

Savings planTax-free ISA savings accounts were first introduced in the UK 12 years ago as an incentive to encourage people to save. According to the latest figures, 17.5m people in the UK currently hold around £143bn in cash Isas.

ISA activity usually picks up around the end/start of every tax year (April 5th/6th) so competition is heightened in an effort to draw in new savers.

In April, the annual ISA limit rose from the previous level of £10,200 to £10,680 which mean savers can deposit up to £5,340 into cash ISAs and the remainder into stocks and shares ISAs or up to the full amount into a stocks and shares ISA.

Savers who currently have a cash ISA, or who are planning on opening one are being urged to check the interest rates offered and be aware of when they will fall so the account can be switched.

Fixed Rate Bonds

Meanwhile, those who are prepared to lock their funds away for an extended period of time are getting the best interest rates offered for over a year, according to Moneyfacts.

The financial information service has said that rates offered on relatively short-term fixed rate bonds have been on the rise since August last year.

The average interest rate for a one year bond I currently 2.85%, the highest level since March 2010.

This follows a rate of 3.42% offered on the average two year bond, 3.7% for 3 year bonds and 4.1% offered on 5 year bonds.

However, savers must be sure that they are happy with losing access to their funds for the agreed fixed duration, as requiring early access would result in a hefty penalty.