Savers: how to maximise your returns in the year ahead
Independent savings expert, Savings Champion, has compiled a list of top tips to help you get the most bang for your buck:
1) Switch now to a higher paying account
While we saw an increase in the Base Rate at the end of 2017, not all providers passed on the full 0.25% to their customers and even if they did, often the new rates are still uncompetitive, especially with the high street providers. Best buy rates have been on the rise all year and therefore with some accounts paying as little as 0.05%, even after the Base Rate rise, savvy savers can earn much more elsewhere.
Many of the best rates can only be opened and operated online and while this has many benefits, not everyone wants to use them. You can still find other accounts that are postal, telephone or branch based, but it can be harder to find the best ones.
2) Take a balanced approach
It’s important not to delay taking action while you wait for rates to continue to improve. While you might earn a better rate some time down the line, in the meantime you will be missing out on precious extra interest every day that you are sitting in a poor-paying account – and the market may peak in the meantime.
Savers could consider a balanced approach to their savings, taking advantage of some of the top rates on offer now – including high interest current accounts and fixed rate bonds – and also looking at variable rate accounts, which can be used to react to improvements in the market.
3) Take advantage of high interest current accounts
Current accounts paying high interest rates on credit balances have given savers a real boost over the last few years, offering rates head and shoulders above the best on offer on standard savings accounts.
The rates on offer from the likes of Nationwide, Tesco Bank and TSB Bank, are still market leading, albeit on smaller balances. However, it is worth noting these accounts are more complicated than standard savings accounts with a number of hoops to jump through and rules to keep.
4) Use your cash ISA allowance
With many savers enjoying tax free interest as a result of the introduction of the Personal Savings Allowance (PSA) in April 2016, some may be questioning the value of cash ISAs. However, the PSA is limited by the amount of interest you earn, whereas cash ISA interest remains tax free regardless of the amount held in the accounts and the interest rate you get.
This tip should be of particular note for higher rate taxpayers, who have a lower PSA of £500 and additional rate taxpayers, who receive no PSA at all.
5) Get into the savings habit
If you need to build up your savings for a specific purpose or a rainy day, regular savings accounts are a great way of getting into the savings habit. These accounts are designed for regular monthly deposits and sometimes even penalise you for missing payments, which could be an incentive to save in itself.
The accounts encourage saving by offering competitive rates of interest and although many of the best rates are restricted to those with current accounts with the provider, often savers can combine the two for even higher returns, as is the case with the 5% AER on offer from Nationwide on both its FlexDirect Current Account and Regular Saver.
6) Don’t stick to the high street names
Some of the best returns of the market can be found outside of the high street, but with the same rules and regulations and the same level of Financial Services Compensation Scheme (FSCS) cover, these alternative providers may be worth considering. It may be time to try a new name.
7) Don’t miss maturity dates
When your fixed rate bond matures and you do nothing, often the consequences are not stacked in your favour. Many of the bond maturity holding accounts pay just 0.10%, before tax.
The same is true for bonuses…
The banks and building societies are hoping that you have other things to do when your bonus period comes to an end, with your rate potentially plummeting with it. Using an account with an introductory bonus has become a way of savings life these days but don’t let the providers enjoy the spoils of your inertia.
So, make a note of when your bond or bonus ends, check what rate you are being offered and move your money somewhere else if they are not giving you a fair deal.
8) Use your allowances
As well as your ISA allowance, there may be other tax allowances waiting to be used or wasted. Does your spouse pay less tax than you? Are you both fully using your PSA? If so, consider putting more savings in their name.
9) Next Christmas is coming…
If you haven’t saved for Christmas this year you’ve probably whacked a load of money on your credit card, and we all know what an unwelcome additional headache that means. So rather than doing the same again, as well as paying off that debt, why not put a little aside each month for next year?
Tom Adams, head of research at Savings Champion, says over the last few years, challenger banks have dominated the savings landscape – putting the bigger names to shame with the comparative rates on offer.
“There is no reason to believe that 2018 will be any different – after all, these providers are actively encouraging savers in by pushing rates back in the right direction and, as a result, meeting their own funding requirements and assisting their lending activities.
“While we would like to see high street banks featured more prominently in the best buy tables, sadly it is still the case they can rely on their brand to pull in and retain the funds they need and can rely on savers’ inertia and reluctance to try out new names.”
Adams says that one of the biggest barriers to savers getting a better deal is the perceived hassle of switching. But the advent of ‘open banking’ in 2018 may help with the process, as it could lead to customers being able to access all of their account information in one place, encouraging them to take action where necessary.
“We will need to see how this looks in practice, but it certainly has the potential to help arm savers with the knowledge they need to take action.
“2018 could well see more new providers enter the savings market, as there are a number of banks awaiting banking licences and putting together their launch plans. There were a number of new providers in 2017, such as PCF Bank, Wyelands Bank and Ford Money to name a few and 2018 will hopefully see more of the same.
“After all, more new providers will lead to increased competition and they will certainly be aiming to make a name for themselves by offering good deals for savers. We have also seen more app-based providers, such as Atom Bank and Starling Bank, so this growing area of the market will be something to watch out for in 2018, as more providers aim to take advantage of the growing appetite for tech,” he says.