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Martin Lewis' tips to make the most out of your cash

The pandemic has hit many bank balances hard, but for some now is the time to make the most of the savings you have in your bank account. So whether it’s paying off your debts, signing up for ISA or getting the best out of your current account - Martin Lewis shares his top tips on how to make the most of your savings. 

Millions across the nation have money sitting in high street savings accounts earning diddly-squat, often at 0.1% or less, and are scared to move it as they want safety. If that's you, our Money Saving Expert Martin Lewis says STOP IT. There’s currently a way you can earn over ten times that amount and it’s 100% safe. He’s here to show you how…

Below is a brief run through, for full details and step by step help with all savings products see Martin’s ‘Full savings’ guides.

Why are so many people earning such low rates?

Sadly, it's another dire year for savers. Following the Bank of England base rate cut a few months ago to 0.1% - the lowest in 325year history – and as it wants people to spend more to spur on the economy, savings rates have continuously plummeted, and things don’t look set to improve. Yet also many people leave their savings with their own bank, or just sitting in old accounts; if that’s you, you’ll almost certainly earn nowt.

To get a half-decent return you need to become an active, disloyal, aggressive saver, shifting from best rate to best rate. So, CHECK WHAT YOUR SAVINGS PAY. Anything earning less than the top 1.16% easy-access rate needs moving. Don't dally - every day is lost interest.

How do people earn the top 1.16% savings rate?

Currently, and unprecedentedly, the top-paying easy-access savings all come from by far the safest place, NS&I (used to be called National Savings), the Government-backed savings institution. It currently offers the top three easy-access accounts.

1. NS&I Income Bonds: 1.16% AER (min £500). It's the top payer. While the name's strange, Income Bonds are just easy-access savings, and can be operated online. Deposits and withdrawals must be in blocks of £500+, the only key difference here is the interest isn’t paid into the account, its paid out to you each month into a separate account (so you don’t earn compounded interest – unless you then put it back in). Max savings is £1m/person.

2. NS&I Direct Saver: 1% AER (min £1). The Direct Saver is simple and can be operated online. You have full flexibility on withdrawals and deposits, while the interest is paid into the account annually and compounds. Max savings is £2m/person.

3. NS&I Investment Account: 0.8% AER (min £20), post only. The Investment Account works like the Direct Saver, except you operate it by post - including withdrawals. Max savings is £1m/person.

It’s also top for other accounts too including 3.25% junior ISA and the direct cash ISA (more on that below). 

These are easy access rates, so couldn’t they drop too?

Yes. Though its rules say it must give you two months’ notice. Yet crucially it’s just been told to increase its fundraising from £6bn in March to £35bn now, so its rates are likely to stay strong, providing you certainty. I think it will very much fight to be the best buy and possibly even launch new products. 

How does this compare the rest?

Yorkshire BS pays the next-best easy-access rate, at 0.8% AER variable if you deposit £10k+ (0.9% if you deposit £50k+). For smaller amounts, Saga pays 0.75% AER variable and can be opened with £1. And while fixed rates normally smash easy-access, as you have to lock your money away, right now NS&I beats the top 1 year fix with Charter Savings Bank at 0.91% and the top 2 year gets close at 1.15% with Close Brothers.


How safe is your money in there?

All UK-regulated savings accounts are protected up to £85k per person per institution under the UK safe savings scheme, but for those with more, as NS&I is Government-backed it's all protected - even if you’re lucky enough to have millions – which many of these accounts allow you to put in.


Should everyone be saving though, what if you’ve debts or a mortgage?

If you’re paying interest on credit cards or overdrafts and loans (barring student loans), if you can it’s usually far better to pay those off with any savings, just double check for early repayment penalties on loans. As the interest they charge is much higher than the amount you earn in debt. For example, saving £1,000 at 1% means you earn £10/year. But have £1,000 debt at 20% interest means you’re paying £200/year. So, pay of your debt with savings and you’re £190/year better off. 

With mortgages the rule is, if your mortgage rate is higher than you earn saving – as it will be for most - then you’re usually best to overpay it. Yet here make sure you are allowed to overpay penalty free, and always keep a cash emergency fund in savings of 3 – 6 months worth of bills.


What about an ISA, should people be saving in one of those?

A cash ISA is just a tax-free savings account. Yet these days all basic 20% rate taxpayers have a personal savings allowance meaning you can earn £1,000 interest a year anywhere without it being taxed (higher 40% rate taxpayers can earn £500/year and top 45% taxpayers don’t get one). 

As most don’t pay tax on savings interest and cash ISA rates are far lower than normal savings, only those with large savings or very high earnings should be looking at cash ISAs. The top easy access cash ISA is also with NS&I at 0.9% and Cynergy Bank also 0.9%, the top one-year fix is Charter Savings Bank at a paltry 0.76%.

Are there any other ways to boost savings interest?

There are lots of niche options. Let me run through them quickly…

  • Claiming universal credit or working tax credits - get a 50% Government bonus on your savings.

    The Help To Save scheme lets those on low incomes save up to £50 a month, with a 50% bonus of up to £1,200 paid after two years – best of all this is paid on the highest amount you’ve had in, so if you got up to £500 in, then had to withdraw it to use it, you’d still get the £250 at the end of two years. And as many may now be claiming universal credit, who weren’t before the pandemic hit, many more are now eligible for this.

  • Saving for your first home – the Lifetime ISA (LISA) is a no-brainer.

    First-time buyers aged 18-39 saving in this special ISA get a 25% bonus added on what you’ve saved (max £4,000/year) to use towards your first home as long as it’s under £450,000. The top payer is Nottingham BS at 1.25%. If you already have a Help to Buy ISA (which is no longer available for new customers) whether that beats a LISA depends, see the link at the top for help.

  • High interest for regular saving or via current account. 

    Some regular savings accounts where you save small amount months can pay more, like Coventry BS 1.85% on up to £500/mth. As can current account incentives like Nationwide FlexDirect pays 2% interest on the first £1,500 in it provided you meet their criteria.

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