By ADRIAN LOWCOCK 01/10/2010
This week is British Savings Week, but with interest rates still at all time lows, the government’s spending cuts and a weak economic outlook, can savers do anything to make their money work harder for them?
Here we look at several simple steps to enhance the returns of your savings:
Review and consolidate your Savings & Current accounts
When looking for the best rates, you may end up with many different accounts which have accumulated over the years. It is a good idea to bring these all together under one rate, particularly if there is an account offering a more attractive rate for a larger sum. Many current accounts don’t offer very much interest, usually below 1%. However, some of the banks, looking to entice you away from your current bank, are offering very attractive rates. For example Santander offer 5% on balances up to £2,500 when you pay in £1,000 a month. However, after 12 months the rate drops down to 1%.
Use your ISA allowances
Although rates on Cash ISAs have been derided because the gross rates are worse than taxable savings accounts, the total return still remains better than none ISA accounts. This is because the banks are not keeping all of the tax savings to themselves. Savers can put up to £5,100 into a Cash ISA and can earn 2.80% tax free with no notice.
Be aware of Introductory Bonuses
These usually last for 12 months and once they end you are left with an account which is no better than the one you moved from. When this bonus ends it’s time to move your account and find the next best offer. Remember you are lending the bank your money, so it is up to you to find the best rate of return.
Consider other investments
Investing in shares or bonds will not be for everyone, but when considering the limited returns cash is offering then for some, these assets become more attractive, whilst for others in need of income, they are being forced to take on greater levels of risk. Investors can expect to earn over 4% in shares at present, with the potential for capital growth as well, although they are not without their risk and the value may be worth less than originally invested.
Saving for the longer term
Banks like certainty and are therefore willing to pay more interest if you commit to tying your money up for longer periods of time. However, there is a balancing act as inflation may well erode the value of your savings if it exceeds the interest rate on the account. Currently CPI is 3.1% and we believe this will not move up in the next few years, after that it is difficult to predict, so we do not recommend tying your money up for more than 3 years. Current rates for 3 year fixed bonds are 4.10 % currently available through a number of providers; AA, Cheshire, Dunfermline and Derbyshire Building Societies.
For more information on savings accounts please go to our Income rates on the website. To discuss alternative options to cash please call one of our Investment Professionals on 020 7189 9999.