One in six savers say it's simply too much effort to switch savings accounts despite higher rates on offer. Many could be missing out on the best rates, and with interest rates seemingly peaking, the window of opportunity is closing.
For those who aren’t sure how to take action, Shawbrook Bank has put together a to-do list for savers:
Think tax
With rates as high as they are, and with the Personal Savings Allowance remaining at £1,000 (for a basic rate taxpayer), you could easily be liable to pay tax on the money you make from your savings pot.
Thankfully, you can use ISAs, which means you can save £20,000 per year, per person tax-free. Currently, £19,600 in an easy access account paying 5.11% could put you over the PSA tax threshold. So, think tax and choose the account type carefully to ensure best returns.
To fix or not to fix?
Another thing to consider is if you should save into a fixed account or go with easy access. This will depend on how often you’ll need access to your money. Those needing short notice access might consider an easy access account, while those who are saving for something longer-term might consider fixed term products.
It is also worth noting the different rates and seeing which would give you the most bang for your buck.
The power of compounding
Whatever type of account you end up choosing, think about the power of compound interest. The key is to keep saving both the initial deposit and the interest earned on the balance so you can maximise your earnings.
For example, say you saved £10,000 in an account paying 5.20% AER (gross), over 12 months you would have earned £520 in interest, re-saving the full amount (deposit and interest) could see you earn £547 over the next 12 months. So over 24 months you could make just over £1,000 by just moving your money and reinvesting the first year’s interest – not bad for a couple of minutes work.
And, if you aren’t saving for anything in particular you can rinse and repeat the following year: earning interest, on interest, on interest.
Do something, anything
The absolute key is to do something to engage with your savings. We all live a busy life but making time to do even just one of these things could have an impact on your money.
Be that checking your rates to see if you are on the best rate possible, looking to see if you are coming to the end of a fixed rate bond, or if you would get better returns by protecting your savings from tax within an ISA. Doing any one of these things will help to make your money work harder for you.
Adam Thrower is head of savings at Shawbrook Bank
