Despite figures released this week showing that inflation has fallen month-on-month, experts predict that it will start to rise again over the coming months and is still expected to reach 4% by the end of the year. This, combined with saving rates remaining low, albeit seeing a slight month-on-month increase, means that savers are continuing to fact a challenging market.
To help savers earn the best returns possible on their savings, we’ve looked at how to maximise saving returns.
Many savers have money in accounts that are offering next to no interest. For example, popular high street banks and building societies such as Nationwide, Barclays, Halifax, HSBC, Lloyds Bank and NatWest all have savings accounts offering just 0.01% interest. To give an idea of how little returns savers will make on interest at 0.01%, if £10,000 was deposited into an account at this rate it would earn just £1 in interest over a 12-month period.
Clearly, the first step to ensuring savers maximise the returns on their savings is to choose an account offering the best rate possible. While many high street banks and building societies are offering just 0.01% AER on easy access savings accounts, savers can instead choose an unfamiliar provider that offers significantly higher rates. For example, the top rate in the easy access savings chart is 0.65% AER from Tandem Bank. If a saver deposited £10,000 into an account at this rate, they would earn £65 in interest over a 12-month period.
Alternatively, savers who are happy to lock their money into a fixed rate bond, which does not usually allow further deposits or withdrawals to be made, but in return often offers a higher rate than easy access accounts. can get even higher rates. Again, savers will likely have to opt for an unfamiliar bank or building society to gain the best fixed bond rates, but with the top rate overall currently standing at 1.71% AER it can be a good option for those seeking the best rates possible.
Savers can get a rate of 1.71% AER on a fixed rate bond from Atom Bank, which has a five year term. A £10,000 deposit into this account will earn £884.75 over the five year period. For savers who do not want to lock their money away for as long as five years, there are many fixed bonds offering terms of four, three, two and one year, along with options to lock money away for a specific number of months. The top rate on a one year fixed bond currently comes from Tandem Bank, which pays 1.31% AER. Savers depositing £10,000 into this account would earn £131 in interest during the one year period.
Eligible deposits with UK institutions are protected by the Financial Services Compensation Scheme (FSCS) up to a maximum level of protection of £85,000 per person per institution. All new savings or bank accounts provided to UK customers are now covered by the FSCS.
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Another option available to savers is to take advantage of any accounts offering a Government bonus. Those aged 18-40 and who are saving for their first house deposit or retirement can save into a Lifetime ISA (LISA), which receives a yearly 25% Government bonus. Up to £4,000 per year can be saved into one of these accounts, which if the full amount is saved per year, can result in savers earning an extra £1,000 in bonus as well as earning interest. Savers considering a LISA should be aware that it comes with several restrictions, including for which reasons money can be withdrawn from the account without incurring a penalty. The penalty on unauthorised LISA withdrawals can be significant so savers wanting to know about these accounts should read the guide on our LISA page to fully understand how these accounts work.
Eligible savers on a low income can get a Government bonus of 50p for every £1 they saver over four years by saving into a Help to Save account. These accounts can be applied for through the Government website and savers can make deposits into the account using a debit card, standing order or bank transfer. For more information about these accounts and who is eligible to have one, visit the Government website.
Long-term savers looking to gain better returns may want to consider investing. Although investing is much riskier option than putting money into savings account as investors are not guaranteed a return on their investments and there is also the risk that they could lose all their money, including initial deposits. Saying this, investing can result in earning better returns than can be gained on savings accounts and for those looking to deposit their money for five years or more could be a good way of maximising returns. Due to the risks involved with investing it might be worthwhile speaking to an independent financial advisor before investing to discuss the risks involved and whether it is the best option. Moneyfacts.co.uk readers with a minimum of £100,000 in savings and investments can get a free one hour consultation with independent advisors Kellands – more information about this offer can be found here.
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