Posted on October 30th, 2013 | Categories - Savings
The consumer group, Which?, has found 1,562 of the 1,952 available savings accounts are ‘zombie accounts’, meaning they are closed to new business.
The research found the interest rate on many ‘zombie accounts’ is scandalously low:
- 40% of ‘zombie accounts’ pay less than 0.5% interest each year, well below the current rate of inflation
- Even worse, 258 of the available savings accounts pay an interest rate of less than 0.1%
- Popular Cash ISAs (Individual Savings Accounts) are not exempt, with many paying pitifully low interest rates
So, how can you avoid your savings falling into the zombie trap? How do you make sure you get the best possible return on your cash?
We’ve pulled together six tricks used by savvy savers to do just that.
1. Get off your backside!
Getting the best return on your savings isn’t easy.
Firstly you’ve got to monitor your accounts, keeping an eye out for interest rate cuts, which are often not made as obvious by banks and building societies as many savers would like.
Secondly, you need keep a note of when fixed rates come to an end, which often signifies a sharp drop in the interest rate you’ll receive.
Thirdly, you’ve then got to find the time, not easy in today’s busy world, but the reward will be clear each year on your annual statement!
2. Search hard for the best rates
The internet and best buy savings tables are the savers friend. They make the job of finding the best account so much easier, but remember, some of the best savings rates come from small banks and building societies, which might not be high street names, you might have to look hard to find them!
Remember too that many of the best deals, especially fixed rate bonds, only stay available for a short time. Keep checking the best buy tables and move quickly to make sure you don’t lose the best rates.
3. Tax free = more interest
Savvy savers know that paying less tax on your savings means better return; there are two easy ways to achieve this.
Firstly, make sure you use your Cash ISA allowance each year. We’ve heard some savers moan about having to open a different Cash ISA each year and that it can be hard to keep track of multiple accounts. Whilst that might be true, going to the trouble of using your Cash ISA allowance each year really is worth it. In the current tax-year you can pay up to £5,760 into a Cash ISA, for a couple that’s over £11,000 you can shelter from tax, do that over 10 years and that’ll be more than £100,000 the taxman can’t touch.
Secondly, if you or your partner pay different rates of tax make sure your savings are held in the name of the lowest rate taxpayer. Why pay 20% or 40% tax on your savings when your partner is a non-taxpayer?
Of course you have to trust them not to run off with the cash!
4. Fixed the interest rate
Fixed rate bonds tend to pay better rates of interest than other accounts and the longer you fix the better the rate of interest.
There is a balance to be struck though. Savvy savers know that interest rates are currently very low and fixing for say four, five, or even seven years right now, could leave you stranded on an uncompetitive rate
5. Inflation is the enemy
Savvy savers know inflation is the enemy and beating it is crucial to maintaining and even growing the real value of your capital.
Put simply, if the interest you get each year, less tax, is below the rate of inflation, then you have lost money.
It won’t feel like that, your annual statement will show more money in your account at the end of the year compared to the start. But take our word for it, if the interest you get is below inflation you’ve lost money in real terms.
The current rate of inflation, measured by the Consumer Prices Index (CPI), is 2.7% , you can check which accounts beat inflation by going to Inflation Watch on our website.
Click here to visit the Inflation Watch page now.
Most savers deposit a lump sum in an account, but savvy savers also take advantage of regular savings accounts, as they can offer very attractive rates of interest.
Whilst the maximum amount you can pay into these accounts each month is often limited, they can be very useful if you are saving for a specific target or are happy to drip money from a more traditional account into a regular savings account.
You can see the best regular savings accounts by clicking here.
Your savings won’t look after themselves!
Interest rates are already low and with banks and building societies dropping interest rates on many of their accounts, savers have to work hard to get the best possible return from their savings.