Are you in a savings account which pays just 0.05 per cent interest a year? If so, it is time to move.
You can squeeze hundreds of pounds more annual interest from your nest-egg — without any risk.
And even if you haven’t built up a big savings pot, there are rich rewards for making your money work harder.
After nine years of record-low rates, things are looking up for Britain’s 44 million savers. Rates are finally on the rise, widening the gap between the best and worst payers.
Time to act: You can squeeze hundreds of pounds more annual interest from your nest-egg — without any risk
Head for new banks — your money is no less safe than with older firms — or building societies, rather than traditional High Street banks.
It’s here where rates are getting better. The big banks are still paying savers a pittance.
Most people tend to open their first savings account with the bank that runs their current account then just stay put.
Nearly £9 out of every £10 of cash savings is sitting in easy-access accounts. HSBC pays just 0.05 per cent, Lloyds and Halifax pay as little as 0.2 per cent and Santander 0.25 per cent.
Newer banks pay as much as 1.3 per cent — giving you an extra £125 a year on each £10,000. Anna Bowes, director at advice website Savings Champion, who regularly switches savings accounts, says: ‘Big banks don’t need to pay good rates to retain money.
‘They rely on savers’ inertia and the fact they are well known. A switch should be straightforward.’
Kevin Mountford, chief executive of Raisin UK, which helps new banks raise money from savers, says: ‘Most people rely on the big banks. This is a mistake if you want a good rate of interest.’
Test out new Isas
If you invest through an Innovative Isa, the interest you earn will be tax-free
Peer-to-Peer lending is where you lend your savings to individuals and companies.
Returns can be as high as 7.5 per cent — and if you invest through a so‑called Innovative Isa, the interest you earn will be tax-free.
However, the higher returns come with more risk. Unlike a regular Isa, your money is not protected by the Financial Services Compensation Scheme. So if the borrower defaults, you could face big losses.
Experts say you should put no more than 10 per cent of the money you’ve set aside for an Isa into this type of account.
There are only a handful of companies offering this type of Isa, but the pace is gathering.
Last month, Stelios Haji-Ioannou’s easyGroup launched an easyMoney Isa that aims to deliver 4.05 per cent a year.
Your cash is put into short-term loans to property investors.
Another Isa allows people to invest directly in the restoration of historic buildings.
The Isa, launched by Oaksmore Portfolios, advertises returns of up to 7.5 per cent a year over a five-year term. The minimum investment is £1,000.
Check your rate and move if its less than 1 per cent. And when your fixed-rate deal ends, don’t simply stick with your current provider.
You could raise your rate from 0.4 per cent fixed for one year to 1.8 per cent from new banks — £140 extra interest on £10,000.
Rachel Springall, from data monitors Moneyfacts, says: ‘You might expect any rise in base rate to be passed on in full automatically, but this no longer happens.’
Savers face a huge choice of more than 166 easy-access accounts. Ignore the top payers which limit you to a certain number of withdrawals if you want to dip into your money at any time. Some let you take out money only once a year, others three or six.
Unless you are prepared to move your money annually, also ignore those which pay a bonus for the first 12 months you are in the account, but then chop the rate sharply.
BUILD UP A FUND FOR A RAINY DAY
Before you do anything as a saver, you should pay off your most expensive debts. You pay higher rates on these than you can earn on your nest-egg.
Then, look to build up a rainy-day fund to cover emergencies with an easy-access account.
Virgin Money Regular Saver pays 2.25 per cent on savings of between £1 and £250 a month.
If you plan to put away more, look for top payers such as RCI Bank Freedom account (1.3 per cent) or Ford Money Flexible Saver (1.22 per cent).
Before you do anything as a saver, you should pay off your most expensive debts. You pay higher rates on these than you can earn on your nest-egg
Justin Modray, of independent advisers Candid Financial Advice, says: ‘As a rule of thumb you need three to six months’ income in an easy-access account, just in case anything untoward happens.’
Your money is as safe with new banks as with the old timers.
Under the Financial Services Compensation Scheme (FSCS), up to £85,000 at any one firm is safe in the event of it going bust.
On joint accounts you get £170,000 protection. The limit covers banks and building societies registered in the UK, as well as Swedish bank Ikano.
With RCI you get €100,000 of cover (about £89,000) under the French Scheme. Ikano aligns its cover to the Swedish scheme, covering UK savers for £85,000.
With National Savings & Investments 100 per cent of your money is guaranteed by the Government.
MAKE SAVING A HABIT FOR LIFE
Once you have a reasonable amount in your rainy-day fund, be clear of your aims. If you want to keep building up your savings, see what your current account offers.
For example, First Direct pays 5 per cent on £25 to £300 a month. Ensure you move your pot to your better-paying easy-access account after your fixed rate account’s 12 months is up.
If you plan to buy a home, consider a cash Lifetime Isa with Skipton Building Society (0.75 per cent) or a Help To Buy Isa (the top rate is 2.56 per cent with Newcastle BS).
Both accounts offer a 25 per cent bonus on your savings when you use the funds to buy your first home — but have different savings limits.
With the Help to Buy Isa, savings are capped at £2,400 a year, or £12,000 in total. With the Lifetime Isa, you can save up to £4,000 a year, or £128,000 in total, and still get a 25 per cent bonus.
The maximum bonus under the Help to Buy Isa scheme is £3,000, compared with £32,000 on the Lifetime Isa.
KEEP SWITCHING TO BEAT BANKS
Often providers raise rates for new savers, leaving loyal customers with poorer rates.
If you are happy to go online, switch your nest-egg to a top rate such as Ford Money’s Flexible Saver at 1.22 per cent.
It might not be the very top rate but it will keep up with the general level of savings rates. Or French-owned RCI Bank pays a slightly higher 1.3 per cent.
If you don’t fancy running your account online — or can’t because of a poor internet connection — head for your local building society or smaller banks with branches, such as Virgin Money or Kent Reliance, where you can earn at least 1 per cent.
Smaller building societies which pay competitive rates include National Counties at 1.01 per cent on its Branch Saver.
If you don’t live near a branch, some, including Virgin Money and Coventry BS — which pays consistently good, if not top rates — and NS&I (Direct Saver at 0.95 per cent) let you open an account over the phone.
And don’t forget your standard Isa allowance of £20,000 a year.
For the best deals, check out Nationwide at 1.4 per cent or 1.3 per cent, depending on how long you have been a member of the society, or Virgin Money at 1.21 per cent. Both are available online or in branches.
To switch your cash Isa, ask your new provider to arrange it for you —or you could end up losing the tax-free benefit on your interest.
Buy bonds for chance to win big
Premium bonds are a less risky way of trying to win £1 million than the Lottery.
With National Savings & Investments you will also be safe in the knowledge your money is 100 per cent guaranteed by the Government should anything go wrong.
Premium bond holders are entered into a prize draw every month. There are two £1 million tax-free jackpots as well as a number of other prizes from £25 to £100,000.
Last December, the odds of winning a prize improved from 30,000 to one to 24,500 to one. The number of prizes also increased from 2.3 million to 2.9 million.
In the March draw, a man from Bedfordshire scooped £1 million just one month after buying £7,000 bonds for the first time.
Investments start at £100 and are capped at £50,000.
There are around 1.4 million unclaimed Premium Bonds prizes, worth over £58 million.
Check to see if you have missed out on a prize at nsandi.com/prize-checker by entering your Premium Bond holder number.
Alternatively, call 0500 007 007 or write to Premium Bonds, NS&I, Glasgow G58 1SB quoting your name and address, date of birth and, if known, the bond holder number.
FIXED RATES ARE WORTH A GAMBLE
If you have enough easy-access money, you can turn to a fixed-rate bond to earn more interest.
But only do this if you are sure you don’t need the money over the period.
Patrick Connolly, of advisers Chase de Vere, says: ‘You need to make sure the difference between a variable and fixed rate is wide enough to make it worthwhile and that you don’t need the money. We don’t know what will happen to interest rates so tie your money up for a maximum of two years.’
The top easy-access rate is currently 1.3 per cent against a top one-year fixed-rate of 1.8 per cent, giving you an extra £50 on each £10,000.
That comes from new banks Masthaven and PCF. Both accounts are available online. The PCF deal can also be opened by post. Phone the bank (020 7222 2426) for an application form.
National Savings & Investments’s one-year Guaranteed Growth Bond is available by phone.
It’s not the top rate but it’s still much better than you will earn from big banks such as Lloyds’s 0.4 per cent and Halifax’s 0.45 per cent.
New fixed-rate deals can change at the drop of a hat — either up or down — but once you’re locked in, your return shouldn’t change for the duration of your term.
The question for many savers is will they miss out if interest rates rise?
This is unlikely, as to do so your easy-access rate would need to rise by more than one percentage point after six months — and no one is expecting that to happen.
Currently, experts think the Bank of England base rate will rise by 0.25 percentage points to 0.75 per cent in May. But predicting interest rates is notoriously difficult.