Don’t line the bankers’ pockets - be a savvy saver in 2018
Although at last we saw a rise in the base rate in November last year, it only brought it back in line with where it has been since 2009, so for savers it was not really an early Christmas present. And while many providers passed on the full rise to their loyal savers, a significant number did not. In any case, those who did are still not necessarily paying a competitive rate, even after the rate hike.
The good news is that the challenger banks were busy all year, putting the bigger names to shame and pushing rates in the right direction. And there’s no real reason to think that things will change in 2018 - there are a number of new banks waiting in the wings for their banking licences.
So, while we all wait for the base rate to increase again, if you don’t review your savings and keep it on the move in the meantime, you could be missing out on valuable extra interest.
It’s tough to find a savings rate paying more than inflation, so, it’s vital to avoid the common savings mistakes and instead make your cash work as hard as possible. Here’s how;
1. Don’t leave money in an uncompetitive account
Many people are guilty of inertia and the banks and building societies take full advantage of that. You open an account in good faith with your bank, expecting them to look after you as a loyal saver. But the fact is, high street banks pay savers some of the worst rates on the market.
You may be unaware of just how poor the rate is or you might be too busy to move it. But if someone handed you an extra £635 each year, would you say no? That’s the simple truth between a poor paying account and one of the best easy access accounts for someone depositing £50,000.
2. Don’t miss maturity dates
When your fixed rate bond matures and you do nothing, often the consequences are not stacked in your favour. You might be lucky and be rolled over into another similar bond with a competitive rate – but it’s more likely that you will either end up languishing in a bond maturity account, earning peanuts until you give your instruction – or worse still find you’ve been tied into another bond at an uncompetitive rate. So, set a reminder, then take a look at our best buys and move your money.
3. And the same for bonuses
A number of the best buy easy access accounts include bonuses of some description – whether that’s an enhanced rate for the first 12 months – or whether it’s a bonus that is applied as long as you don’t make too many withdrawals.
Whichever type it is, the banks and building societies are hoping that you have other things to do when your bonus period comes to an end, or you make too many withdrawals, with your rate potentially plummeting with it.
Don’t let the providers enjoy the spoils of your inertia – make sure you make a note and switch when the rate drops.
4. Don’t delay – you might miss out
Instead, take a balanced approach. Although there is much speculation that the Bank of England will raise the base rate again some time this year, history has taught us that speculation is all very well but it doesn’t guarantee the outcome. Plus, even if we do see a rise in the base rate, this won’t necessarily be passed on to all savers – and it certainly won’t ensure that they are earning the best rates, unless they stay vigilant.
While you languish in a poor paying account waiting for better rates to come along, you could be missing out on valuable extra interest in the meantime. Savers could instead take 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 – while also looking at best buy variable rate accounts which can be used to react to any improvement in rates.
5. Why pay tax on your savings if you don’t need to?
I know that we have to pay tax but there’s no point in paying more that we need to – and as savers are getting a pretty raw deal at the moment, it’s important to earn as much interest as possible. So, if you are paying tax on a savings account, but you haven’t used up your ISA allowance yet, you could be losing out, both now and in the future.
6. Not using allowances
As well as your ISA allowance, there may be other tax allowances waiting to be used or wasted. Are you and your spouse both using your Personal Savings Allowance? Does your spouse pay less tax than you? If it could boost the interest you earn, consider putting more savings in their name. Then trust them not to spend the money when you’re not looking!
7. Loyalty doesn’t pay
For many providers, getting new customers seems to be their prime focus, while you’re lucky if they chuck loyal savers some scraps. Don’t be persuaded by so called “preferential rates” for existing customers as you can often do better elsewhere.
HSBC, for example, offers a special rate for HSBC Advance customers only. In reality this means the account will pay those customers 0.10% rather than 0.05%. Compare this to 1.32% gross/AER currently on offer with AA.
8. Make sure your money is safe
Over the last few years the Financial Services Compensation Scheme has done a good job at promoting itself, so hopefully most savers are aware that up to £85,000 per person, per UK banking licence is protected by the scheme.
But it’s also important to realise that some providers may share a licence. For example, in our Easy Access Best Buy table, the AA and Post Office accounts are actually both provided by Bank of Ireland UK – and therefore if you were to save £85,000 into each of these accounts, half your money would be unprotected.
9. Stay up to date with new accounts
If you are looking for a new home for your savings or want to switch accounts, our free Rate Alerts and weekly Best Buy delivery service keep you up to date with the latest savings news.
10. Get into the savings habit
If you are new to saving or need to save for a specific purpose, regular savings accounts are a great way of getting into the savings habit. They are designed to encourage a regular monthly deposit and some may even penalise you for missing payments – an incentive in itself.
They also will often pay some of the best rates available, although the very best may be restricted to those with current accounts with the provider – again which can sometimes boost the overall interest earned.
For example, Nationwide offers 5% on up to £2,500 deposited in its FlexDirect Current Account and up to £250pm on its Regular Saver.
We hope that you’ve found these tips useful – of course we’d love to hear any savings tips that you’d like to share.
And if you have any questions, or would like to speak to a financial adviser to check that your money is working as hard as it should be, please give us a call and we can help to point you in the right direction. Call on 0800 011 9705.
An Insiders Guide to Wealth Management
Navigating the best and most appropriate vehicles for your wealth can present a minefield of different options, interest rates, returns and timescales. The right financial advice can help to eliminate these problems by guiding you away from the unsuitable to create a solution and/or portfolio tailored to your objectives.
To help you, Savings Champion has produced this guide to highlight some key factors to consider when deciding to review or appoint a Wealth Manager, including eight essential questions to ask to ensure you end up with the right adviser for you, your family and your financial future.
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