Savings rates are at dismal, spitworthily low rates. Yet, if you know the tricks, you can boost them. Our Money Saving Expert Martin Lewis is here with his savings fountain to show you how to maximise the cash.
The reason it’s a fountain, is that the savings with the best rates or tax treatment only allow you to put a certain amount in, or have special conditions. Therefore, you fill those up to maximise the interest, and then move the overflow on to the next best rates.
It’s worth noting that savings rates can, and often do, change daily. See Martin’s full savings best buys for all the latest rates. Now, on to the various fountain tiers.
1. Earn up to 6% with regular savings accounts
Regular savings accounts can have extremely high rates of interest. Yet you can only put in a limited amount each month. So fill them up, and then move on to the next best.
Top is First Direct’s Regular Saver, which gives a massive 6% AER on deposits of up to £300 a month for a year – yet you need its bank account. If you’ve not got it, then you could think about switching, as it gives new customers £100 and is the number one bank for customer service. HSBC has a similar 4% deal for its customers.
If you don’t want to move bank account, Leeds Building Society is the top one available to all regular savers, at 3.05%.
2. Cash ISAs – tax-free saving
Next, it’s cash ISAs – which let EVERYONE over 16 in the UK have an allowance of £5,760 to save tax-free, each tax year. You don’t need to lock the cash away in one, many are easy-access. And once in, the cash stays tax-free year after year. It’s that simple.
If you’ve already got one, don’t sit idly on your ISA – some pay a pitiful 0.1% - when you could be earning close to 18 times that if you transfer it to boost the rate. If you haven’t opened one this year, you can put £5,760 in until April. So if you can afford to, do it now. The Co-op Bank’s 1.75% AER on £500+ is the top easy-access payer, however it only allows two penalty-free withdrawals each tax year.
Also, as the rate is variable, make a note in your diary to ditch and transfer if it drops.
3. Earn 5% AER easy-access via bank accounts
Now, I used to say “never leave your cash in your current account”. But perversely, the very best easy-access savings accounts right now ARE current accounts. Banks are using high interest rates to tempt you to switch into them. Nationwide FlexDirect pays 5% AER – but it’s for just a year, and only on up to £2,500.
For me, the stand-out is the Santander 123, which pays 3% interest on all savings if you've £3k-£20k. It has a £2 a month fee, but then again, it pays up to 3% cashback on bills, eg, 3% on phone, 1% on council tax, and these benefits should easily cover the fee.
With both of these accounts, you need to properly switch to them. They require monthly minimum pay-ins of £1,000 and £500 respectively.
4. Lock in to boost savings rates
Once you’ve maxed that, we move on to normal savings. The big question here is – are you prepared to lock your savings away? If you are, you can earn better rates.
Yet many pundits predict UK rates will rise in 2015, so don't lock in at today's levels for too long, just in case.
The best one-year fix is at the Post Office which gives 1.8% AER. Or, if you wanted a cash ISA, the top one-year cash ISA fix is with the Co-op Bank, at 1.85% AER. If you’re prepared to do without your cash for two years, ICICI Bank UK gives 2.4% AER, and for a two-year cash ISA fix, the Co-op Bank is the top payer at 2.05% AER. After that, you just want standard easy access savings. ICICI pays 1.5% AER variable, with unlimited withdrawals.
5. Every UK-REGULATED account gets a £85,000 safety net
Crucially, with all of the above, you’re covered by the Government-backed Financial Services Compensation Scheme (FSCS). So if the bank fails, you'd get back up to £85,000 per person, per financial institution. IF you’re lucky enough to have more, split the cash into pots of no more than £85,000.