Search: Best fixed rate savings deals
- Find a higher paying savings account
- Best accounts for long term savings
Anyone who's put their hard-earned cash into a savings account last year won’t need reminding how the lowest interest rates on record have delivered miserly returns.
In fact, when tax paid on interest and the corrosive influence of inflation have been factored in, many of us won’t have made any money at all but will be worse off than when we started!
This raises the question of whether we should simply opt for riskier investments. But the truth is, many of us just don’t want any risk.
So what’s to be done?
Well, while rates might be low, there are still a few tricks we can play to maximise our returns and it’s amazing how many of us continue to miss out.
So here’s a checklist to make sure that your money works as hard as it can for you in 2010.
Don’t pay tax unnecessarily
Any interest earned on a savings account automatically gets deducted of tax at the basic rate of 20%. But if you're a non-taxpayer there's one simple way of boosting your returns by asking your bank or building society to pay your interest gross. All you need to do is complete form R85 – which you can pick up from your bank or building society.
If your husband or wife is in a lower tax bracket than you, then you should also consider holding savings in their name in order to pay less tax.
Rates will stay low so go for fixed
Recently, the rate on fixed bonds has improved. There are now a selection of two-year fixed rate bonds paying over 4% and current five-year bonds are paying over 5%.
What makes these attractive is that they offer considerably better rates than instant access accounts while the chances are we probably won't be seeing much of a rise in interest base rates for the forseeable future.
If you really can afford to tie your money away for a fixed period, switching to bonds should be uppermost in your mind.
Reap the rewards of regular saving
If you save a chunk of your salary each month, you should take a look at regular savings accounts where you can earn a high fixed rate for a limited period.
Yes, there are disadvantages in that you'll normally face a penalty if you don't top-up every month; you won't have instant access to your money and there'll be a cap on how much you can save.
But these accounts are worth it if you are a disciplined regular saver. Some of the best now on offer are Stroud & Swindon Building Society and Principality Building Society’s regular savers accounts which both pay 4.5%. If you want a web-based account, Barclays pays 4.25% and allows you to be flexible about your payments and even make withdrawals with a small loss of interest.
Beware of bonuses
Most big name easy access accounts include a bonus that turns a very unattractive regular rate into something more eye-catching. By all means go for them but switch the moment the bonus rate disappears.
Current accounts may be best
If you don’t have a fortune in savings, there’s a good chance that you’ll earn more interest in a high interest current account than you will in an ordinary savings account – or even a bond.
Among the best are the Alliance & Leicester’s Premier direct Account and the Abbey’s Preferred In Credit Rate which are paying brilliant fixed rates of 6% on balances of up to £2,500.
The key to these is to remember that anything above the £2,500 limit will only deliver a rubbish rate of return and you must keep an eye on when these excellent rates will vanish.
Don’t forget your ISA
Cash ISAs are still a good way of getting more for your money with a tax-free return. You can save up to £3,600 every tax year, while the over-50s can now save a maximum of £5,100 with everyone enjoying the higher allowance from 6 April.
Yes, some ISAs currently pay even lower returns than the best taxable savings accounts. But by stocking up your ISAs now, you'll have more of your money in a tax-free home ready for when rates improve.
Consider “safe” corporate bonds
Corporate bonds do offer you a higher rate of interest but there is the risk that you won’t get your money back if the bond issuer goes bust. That’s highly unlikely if you invest in bonds issued by well-regarded international corporations. But you can play even safer by investing in a corporate bond fund where, in essence, you won’t be putting all your eggs in one basket.
The top performing fund over the last year, the Old Mutual Corporate Bond fund, delivers a gross yield of 6.3% while the best performer over the past three and five years - the M&G Strategic Corporate Bond fund - currenntly yields 4.2%.
Keep moving that money around
Whichever home you eventually pick for your savings, always shop around for the best rates first and then keep track of whether the account stays competitive. The moment you find a better deal elsewhere – go for it.
