RATE OF RETURN
Martin Lewis gives advice on how to make your savings go further
MILLIONS OF people, across the nation have money sitting in high street savings accounts earning diddly-squat, often at 0.1% or less.
Many of you are scared to move your money as you want safety. Yet there’s currently a way you can earn over ten times that amount and it’s 100% safe.
This is the worst time for savers I can remember. UK interest rates are 0.1% – the lowest in the Bank of England’s 325-year history. The only way to get a half-decent return, is to become an active, disloyal, aggressive saver, shifting from best rate to best rate.
So, everyone CHECK NOW WHAT YOUR SAVINGS PAY, anything less than 1% likely needs sorting. Here are the top ways to save, at the time of writing, but for more detail, and daily updated best buys see www.moneysavingexpert.com/ topsavings.
If you want an easy-access account where you can put money in and withdraw when you like, then currently and unprecedentedly, the toppaying easy-access savings all come from by far the safest place – www.nsandi.com (used to be National Savings), the Government-backed savings institution. So, there’s really no excuses to be earning anything less than these…
1. NS&I Income Bonds: 1.16% AER (min £500). It’s the highest payer and can be operated online. Deposits and withdrawals must be in chunks of at least £500, and interest is paid monthly into a separate account (so you don’t earn compounded interest – unless you then put it back in).
2. NS&I Direct Saver: 1% AER (min £1). It’s simple and can be operated online. You have full flexibility on withdrawals and deposits, and interest is paid into the account annually and compounds.
3. NS&I Investment Account: 0.8% AER (min £20). Similar to the Direct Saver, but postal only.
An added boon with NS&I is it’s 100% safe. While all UKregulated savings accounts are protected up to £85,000 per person per institution under the UK safe savings scheme, but for those with more, as NS&I is Government-backed, it’s all protected – even if you have millions – which many of these accounts allow you to put in.
These accounts also smash the pants off the next top rates. www.ybs.co.uk is 0.8% AER, but minimum deposit is £10,000, for less www.saga.co.uk is 0.75%.
And while fixed rates normally smash easy-access, as you have to lock your money away, right now NS&I beats the top 1-year and 2-year fixes. Rates are variable,
but I’d be surprised if they dropped.
NS&I’s rules say it must give you two months’ notice. Yet crucially the Government’s just told NS&I to increase its fundraising from £6bn in March to £35bn now (when you save you’re lending the Government your cash – and it needs it), so its rates are likely to stay strong to ensure that happens.
If you’re paying interest on credit cards or overdrafts and loans (barring student loans), it’s usually far better to pay those off with any savings, just double check for early repayment penalties on loans, as the interest they charge is much higher than the amount you earn in savings.
For example, saving £1,000 at 1% means you earn £10/year. But have £1,000 debt at 20% interest means you’re paying £200/year. So, pay off your debt with savings and you’re £190/year better off.
With mortgages, if your rate is higher than you earn saving – as it will be for most – then you’re usually best to overpay it. Yet check you’re allowed to overpay penalty free, and always keep a cash emergency fund in savings of 3 to 6 months’ worth of bills in savings first.
Those three NS&I accounts are all taxable, whereas a cash ISA is just a tax-free savings account. Yet all basic 20% rate taxpayers now have a personal savings allowance meaning you can earn £1,000 annual interest without it being taxed (40% taxpayers can earn £500/year). So as a basic rate taxpayer you’d need nearly £100,000 saved before paying any tax.
As cash ISA rates are far lower than normal savings, only those with large savings who do pay tax should look at them. The joint top easy access cash ISA is also with NS&I at 0.9% and www. cynergybank.co.uk also 0.9%.
Claiming universal credit or working tax credits – get a 50% boost. The www.helptobuy.gov. uk scheme lets those on low incomes save up to £50/month, and pays a 50% bonus on up to £1,200 after two years – best of all this is paid on the highest amount you’ve had in, so if you saved £500 in, then had to withdraw, you’d still get £250 at the end of two years.
And if you’re claiming universal credit temporarily due to the pandemic, then you can still open this, and keep using it even once that stops.
Saving for your first home – Lifetime ISAs (LISA) are nobrainers. First-time buyers aged 18-39 saving in LISAs get a 25% bonus added on what you’ve saved (max £4,000/yr) to use towards your first home as long as it’s under £450,000. The top payer is Nottingham BS at 1.25%. For full info see www. moneysavingexpert.com/lisas.
High interest for regular saving or via current account: Some regular savings accounts where you save a small amount each month can pay more, like Coventry BS 1.85% on up to £500/mth. As can current account incentives like Virgin Money that pays 2.02% on the first £1,000 and as you don’t need to pay into it each month like most current accounts, can just be used for saving.