8 tips to help make your savings work harder

Posted on July 6th, 2011 | Categories - Savings

In these times of low interest rates and rising inflation it has never been more important to get your savings working as hard as possible for you. We have put together eight simple tips to help your savings do just that.

1. Minimise tax

Paying less tax will mean you get a better return from your savings, but not everyone’s savings are as tax efficient as they possibly can be.

Start by using your Cash ISA allowance (£5,340 in the current tax year) the interest paid on a Cash ISA is not taxed, making them an attractive starting point for most savers.

Next, think about whose name your savings are held in. If you are a tax payer but your partner is not, or is taxed at a lower rate than you, think about transferring your savings to their name as a way of saving tax.

If you are not a tax payer make sure that you claim to have your interest paid gross, without the deduction of tax.

Finally think about National Savings, more of which later.

2. Keep checking the interest rate

Banks and building societies have long had a reputation for offering competitive introductory deals and bonus rates only to reduce the interest rate at a later date.

Firstly check the savings accounts you have at the moment, how does the interest rate compare with other accounts? Using best buy tables can help you with this comparison.

If you can get a better rate of interest elsewhere then consider moving your savings.

Many of the best accounts, especially those which offer instant access, come with a bonus rate attached often for 12 months. At the end of the bonus rate your interest rate will fall significantly as the bonus is removed. Make a note in your diary to look for a better deal as soon as the bonus is removed, there is no point hanging around on an uncompetitive rate when better deals are available.

3. Shop about for the best rate

This might sound obvious but far from everybody does it, we do it for almost every other large item that we buy or investment we make, so why should it be any different with our savings?

Again use best buy tables to find the best rate of interest for the type of account you want.

4. Think about inflation

Inflation has risen sharply over the past year and shows little sign of receding.

Remember, if the interest on your savings is less than inflation you are effectively losing money as the buying power of your savings will be eroded.

If at all possible try and find an account where the interest rate matches or beats inflation. There are a few Inflation Linked Accounts but even with these it isn’t easy to get your savings to keep pace with inflation.

5. Fix for a better rate

As a rule the longer you tie up your savings in Fixed Rate Accounts the better the rate of interest.

Consider whether you need access to your savings and if you are prepared to tie them up for a longer period of time in the hope of a better rate of interest.

A word of caution though before you dive into a long term fixed rate. Many fixed rate accounts penalise you for accessing your money during the fixed rate period or won’t give you any access at all. If interest rates rise in months and years to come the fixed rate that you choose now may not be competitive.

6. Remember National Savings

Not only are some National Savings & Investments (NS&I) products tax free, your capital is also 100% guaranteed because they are backed by the government.

NS&I’s flagship product is probably the Index Linked Certificates which are designed to produce a return above RPI over a five year period. The interest you receive is also tax free, making them popular with all types of savers.

You can save between £100 and £15,000 into the Index linked Certificates which should be considered by all savers looking to get an inflation beating return.

7. Remember the compensation limits

The Financial Services Compensation Scheme (FSCS) is designed to compensate savers if a bank or building society becomes insolvent or ceases to trade.

The compensation limit is £85,000 per person per financial institution, you should bear this in mind when you are deciding where to save.

Also, check that the banks and building societies you use do not come under the same banking licence. Some brands look separate but are actually owned by the same institution under one banking licence. If you don’t check carefully you can mistakenly have more than the £85,000 compensation limit with one institution when it looks as if you have spread your savings.

8. Holding cash in SIPPs is not as easy as you think

Not every account can be opened by a SIPP and not every SIPP will allow access to all SIPPable bank accounts.

For more information deposit accounts which are SIPPable take a look at our pension deposit account best buy table.

More information on savings accounts in a SIPP can be found in one of our recent articles, click here to read it.