Paying off your debts and your mortgage is the most secure thing to do with your money, because there is zero risk
ABULGING savings account was once the mark of a prudent worker. But now, with interest rates at their lowest level on record, they seem like the last place you’d want to keep your cash.
The average easy access rate has dropped to a historic low of 0.3%, down 0.29% from January – meaning most are seeing precious few returns from the money they’ve saved. There’s even talk that this is the end of the savings account.
Helen Saxon, banking editor at MoneySavingExpert.com, says people should be looking around for better ways to invest their money.
She says: “A savings account for a rainy day is a good thing to have – cash you can get your hands on when it’s needed, covering about three to six months’ outgoings.
“But, if you’ve got an emergency fund already and are wondering whether adding to a bog-standard savings account is worth it, there may be other options to make your savings work harder for you.”
Here we look at other ways you can make your savings pay.
PAY OFF YOUR DEBTS
IT IS generally better to pay off debts before starting to save.
The interest you pay on debts is normally much higher than the interest earned on savings, so if you pay your debts with your savings you’ll already be better off.
There are some exceptions, for example if you’re locked into the debt so that paying it off incurs a penalty, as with some loans or mortgages. You can also find 0% overdrafts and introductory 0% credit cards, meaning you can keep your debts while building savings.
Helen advises: “Are you paying more in interest on credit cards and loans than your extra savings are getting you? If so, you could use the spare cash to pay down your debts, meaning you pay less
interest.”
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OVERPAY YOUR MORTGAGE
OVERPAYING your mortgage could potentially bring gains worth tens of thousands. You don’t pay interest on the amount you overpay, so what you save on interest will almost certainly beat the returns possible by putting it into savings.
Overpaying means you make the same gain as saving at your mortgage rate, so with a 3% mortgage, you’d need savings paying at least this to beat leaving your money in a savings account.
But check first if there are any penalties for overpayment.
TV financial expert Jasmine
Birtles of MoneyMagpie.com says: “Paying off your debts and your mortgage is the most secure thing to do with your money, because there is zero risk.”
PREMIUM BONDS
PREMIUM bonds are the UK’s biggest savings product, used by around 22 million people, saving around £91bn with them.
You can put money in and take it out when you want, with the interest paid decided by a monthly draw.
The more £1 bonds you buy, the greater your chances of winning a prize of between £25 and £1m.
Helen says: “While only one in 24,500 bonds win a prize each month, many like the thought of Premium Bonds – after all, there’s always a chance you can win £1m!
“And because they are provided by the Government-backed savings provider NS&I, your money’s safe.”
PEER TO PEER LENDING
PEER-TO-PEER (P2P) lending websites take money from ordinary people and lend it out to borrowers.
But without the banking middlemen, investors putting up cash for lending can get much higher rates than they would from a savings account, while borrowers often pay less than a conventional loan.
But be warned, while lenders are credit checked and rated according to risk, there are still more risks involved than other ways to invest your savings.
Jasmine says: “Zopa.com, which has been going for the longest, suggests projected returns between 2.3% and 5.6%.
“While there is a risk that some don’t pay back, only small amounts of your money are lent out to each borrower, and they also have a slush fund so you will eventually get your money back.”
New regulations mean that new investors are no longer allowed to put more than 10% of their investable assets into P2P.
INCREASE PENSION CONTRIBUTIONS
PAYING more into your pension pot is a sure-fire way of getting more out of our savings.
All workers aged 22 and over who earn more than £10,000 a year must be enrolled into a workplace pension scheme by law and must contribute a minimum of 5% of their salary, while employers are required to pay at least 3%.
Helen says: “If you’re regularly adding to your savings, something else to consider is upping your pension contributions. You get a top-up from the Government through tax relief, your employer may have a generous policy on matching your contributions, and adding more earlier on gives your money more time to grow.”
PROPERTY
IF YOU have a large amount of savings to invest, now is a really good time to buy a property, says Jasmine. “There’s a stamp duty holiday at the moment until next March, and house prices are still a little bit lower than they were. But you obviously need a good amount of cash, and it is more difficult to liquidate your investment if you need the money back.”
LIFETIME ISA
HELEN says: “If you’re under 40 years old and a wannabe first-time
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