Your savings game plan for 2017
Last year was a disaster for savers with relentless rate cuts leaving people confused and struggling to know what to do with their hard-earned cash.
Even before the Bank of England slashed the base rate to 0.25% in August, banks and building societies were slicing rates and pulling best buy deals.
There are conflicting views about whether savings rates will increase this year. Some commentators predict the Bank of England will raise the base rate for the first time since 2009, leading to better deals for savers.
Others believe we won’t see a base rate rise until 2018 at the earliest.
But even if the BoE acts, banks and building societies won’t necessarily rush to increase product rates. In fact, providers are known for taking their time to pass rate rises onto savers.
Whatever happens in 2017, one thing we do know is that any rate increases will come from an extremely low base, so savers will still need to be clever and use a combination of tactics to maximise their chances of getting a decent return.
We asked a host of savings experts for their advice on how best to save in 2017.
Review and switch
The first tip is to be proactive. You are unlikely to earn a competitive rate of interest by holding funds with your own bank so if you see a better rate, switch your money.
For example, according to rate watchers Savings Champion, if you choose the HSBC Flexible Saver, you’ll earn just 0.05%, which is just £5 a year for every £10,000 held. This rate drops to 0.01% on 25 January, meaning you’ll make £1 a year.
But if you switched to a current best buy easy access account paying 1% from a provider such as National Savings & Investments or Tesco Bank, you could earn £100 a year instead.
“It’s free money for just switching away from your bank,” says Savings Champion director Anna Bowes.
Savings Champion offers a free Rate Tracker service which allows you to monitor your accounts and switch if they are uncompetitive.
Consider current accounts
You may scrutinise best buy tables for the most attractive savings rates but don’t forget to factor in current accounts, some of which pay as much as 5% interest.
High interest current accounts have become more prevalent in recent years, but they haven’t been immune from the barrage of rate cuts.
Take the hugely popular Santander 123 account, which until November was paying 3%. It now pays a flat 1.5% on balances up to £20,000, much to the disappointment of its loyal customer base.
However, there are still some good deals out there. Andrew Hagger of Moneycomms cites Nationwide’s FlexDirect current account which pays 5% but only on the first £2,500. (This rate will fall to 1% after 12 months). And Tesco Bank, which pays 3% on the first £3,000.
“These both give instant access and are good deals when you realise the best buy fixed rate savings bond only pays 2.05% if you lock your money away for five years,” says Hagger.
Bowes says one downside to high interest current accounts is you tend to have more hoops to jump through to earn the higher rates. For example, with the Nationwide account mentioned above you need to pay £1,000 into the account each month to qualify.
Think about tying your money up…but not all of it
Fixed rate bonds tend to offer better rates than easy access accounts and as Bowes notes, these products can protect you from any further rate cuts, which may affect variable rate accounts.
However, you don’t want to put all your eggs in one basket because if interest rates do rise during the term of your deal, you can’t access the money until maturity.
Charlotte Nelson of Moneyfacts says it would be wise to opt for a mixture of short-term fixed and easy access accounts so you can benefit from the higher rates of a fixed bond but still have cash to move if the market picks up.
Masthaven Bank’s best buy 18-month fixed rate bond currently pays 1.55%, with a minimum investment of £500.
If you don’t have a lump sum to worry about, regular savings accounts offer some of the best rates on the market with savers able to earn up to 5%, says Bowes.
However, to secure the advertised rate you often have to stick to some strict terms and conditions.
“The best accounts are often linked to a current account and most accounts will generally only allow a small maximum deposit amount per month. The rate may be fixed for just 12 months and access within the term may not be allowed without a hefty penalty,” says Bowes.
Nelson says regular savers should ensure they can commit to the monthly payments before opening the account and make sure they still have enough funds left over to cover emergencies.