Are you making the most of your savings?

The cost of living hasn’t made it easy for anyone to save recently, but if you’ve been lucky enough to put some cash away, then you’ll want to make sure that your money is working hard for you. This month, our money columnist Kalpana looks into making the most of your cash savings.

Interest rates have been creeping up over the last year, with the Bank of England’s base rate now at 4.5%*, but 47% of savers haven’t switched their savings rate in the last year**. Around 15% of savers still have accounts opened in 2017 or earlier when rates were low, and earning less interest.

HOW MUCH INTEREST CAN I EARN?

Rates change all the time, and some top ones are discontinued quickly. Look around, and you may be pleasantly surprised to see banks offering above 5% interest. Let’s say you have £5,000 in cash stashed away. An account with 0.1% interest would give you an annual gross interest of £5. But any Easy Access account paying 3.5% would give you £178; a 5% interest rate would offer £256.

WHICH ACCOUNT SHOULD I PICK?

The savings account for you will depend on your needs and how much you want to save.

Easy Access If you may need your cash at any time, then opt for this type. You could find an account paying 3.82% AER* via Chip (getchip.uk).

Regular Saver These accounts allow you to put away cash each month (usually a maximum amount). First Direct offer 7% AER* on its regular saver account, and you can pay in up to £300 a month – a great way to build savings.

Fixed Savings If you’re happy to lock your savings away for a year or two, then some banks will pay you a bit more interest, such as 5% AER*. But remember, if rates go up, you’ll be locked into the lower rate until your fixed period ends.

CURRENT ACCOUNTS

If you haven’t changed current accounts since you were 18 (don’t worry, you’re not alone) then it’s worth considering whether your bank still suits your needs. If you are always in credit, you could switch (or open another account) to a bank that offers a decent linked savings account. Chase (chase.co.uk/gb/en) and Santander offer cashback on spending.

LONG-TERM SAVINGS

If you are putting money away for the future, consider investing to make your money work harder. But as investments can go down as well as up, you should only ever invest money you do not need for 10 years. This gives it time to grow and ride the ups and downs of the stock market.

Investing should form an essential part of your savings plan, because unless interest rates beat inflation, your cash is losing value as it’s not growing at the same pace as the cost of goods.

My book Invest Now: The Simple Guide to Boosting your Finances (£9.99, Heligo Books) is a beginner’s guide to help you start investing.

It is always worth considering if your savings or current bank account still suits your needs