🔔 Top tips to avoid rock-bottom savings rates

The Financial Editor of the Mail on Sunday, Jeff Prestridge, asked me recently to give him five top tips to avoid earning just 0.01% on your cash.

I rather flippantly replied that there were at least six and they were;

• Avoid the Barclays Everyday Saver
• Avoid the Halifax Everyday Saver
• Avoid the HSBC Flexible Saver
• Avoid the Lloyds Easy Saver
• Avoid the NatWest Instant Saver and
• Avoid the Santander Everyday Saver

And the reason why? Because they all pay 0.01% AER and there are far better accounts available.

Joking aside, it did make me think how important it is - especially when the banks are paying the most appalling rates of interest - to pull out some of the best ways to make the most of your money. So here are my top tips:

Avoid the High Street Banks – instead shop around. Don’t assume that your bank is paying a fair rate. In fact, the high street banks are paying some of the worst rates on the market. And don’t let inertia lose you money, otherwise you’re playing right into the banks’ hands. They are making money out of your hard earned savings - you should too! The good news is that there are savings providers out there who are still looking to raise money from savers. NS&I for example continues to pay the best rates on the market on its easy access accounts. The monthly paying Income Bonds account pays 1.15% gross monthly, while the Direct Saver is paying 1% AER. In a nutshell, on a balance of £50,000 you could earn either £5 a year, or up to £575!! Better still all your money is fully backed and guaranteed under NS&I’s unique protection.

Make the most of National Savings & Investments (NS&I). NS&I’s Net Financing Target, which is the amount of money that NS&I needs to raise for the Government, was hugely increased to £35bn for the year 2020/21, up from £6bn. That should mean that the rates on offer will remain competitive for the foreseeable future. As we have reported before, it’s not just the on-sale accounts that are competitive – so too are the off-sale fixed rate accounts that are only available to existing customers looking to roll over maturing accounts. However, due to the competitiveness of the accounts, NS&I is struggling with the demand, so you’ll need to be patient if you want to speak to someone.

Fix some of your cash? There has been a little battle raging in the fixed rate bond market and while the best rates are still well below where they were before the base rate cuts in March, the current best 1-year rate is 1.20% AER from Paragon and United Trust Bank. A month ago, the best rate was 0.95% - so it’s a definite improvement. Locking some of your cash away will mean that at least some of your money will not see a rate cut until at least the end of the fixed term.

Open a Lifetime ISA – if you are eligible. Those aged between 18 and 39 can open a Lifetime ISA and each deposit made will earn a Government bonus of 25%. So if you deposit the maximum £4,000 each year, a £1,000 bonus will be added. However, there are restrictions on what you can use the money for – before the age of 60 you can only access the funds (including the bonus) to purchase your first home. After age 60 you can simply cash in as you like. There are other important restrictions so make sure the account is right for you.

How about Premium Bonds? – again from NS&I. Although there is always the possibility of not winning any prizes, you never know just how much you could win. The interest rate on the prize fund has remained at 1.40% and each bond has an equal chance of winning a prize – although the fewer you hold the more likely it is that you won’t win a prize – you’re certainly very unlikely to win a prize every month. Those with the maximum (£50,000) are much more likely to win more often. Prizes range from £25 to £1m, with two lucky bond holders per month winning the million.

Get into the savings habit – and earn top rates. Regular Savings accounts often offer higher rates than other savings accounts as the amount you can deposit is restricted. There are usually T&Cs to be aware of too and the very best Regular Savings accounts on the market are linked to holding a current account with the same provider. For example First Direct, HSBC and M&S Bank all pay 2.75% on their 12 month term Regular Saver accounts. But the maximum you can deposit is £300 pm with First Direct and £250pm with the other two. The best Regular Saver account that is open to anyone is with Coventry Building Society. The Regular Saver (2) account is paying 1.85% gross/AER (although this is a variable rate, so could be cut) and you can deposit up to £500 per month for 12 months.

So, while things continue to be really tough for savers, there are some things you can do to protect yourself from low interest rates. And the good news if that even with inflation jumping up to 1% in July, there are plenty of accounts that are paying more than this, so there’s no need to allow inflation to decimate your money.

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