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The five savings lessons you MUST learn now

knightIt’s been a long time but at last there has been some good news for savers. Even though base rate has not changed thanks to increased competition there are now some good deals out there. And now is a good time to get your savings strategy in place in time for 2019: here are five ways to ensure you’re getting the best possible return on your savings.

1. Remember inflation. It’s all very well saving money but if you’re not getting more than the current rate of inflation (at the moment 2.7%) you’re effectively losing money. Here’s how: assume you put £100 in an account earning 1.5%. At the end of the year, you’ll have £101.50. But if inflation is 2.7% over that year, then your £100 will only have the spending power of £97.30 after 12 months. So even with interest added on, after a year your £100 is really only worth £98.80 (£97.30 + £1.50 interest).

2. Remember tax: but don’t get obsessed by it. These days, everyone can earn £1,000 in savings interest (£500 if you are a higher rate taxpayer) before they will pay tax on it. At current interest rates, you’d need to have a chunky five-figure sum before you’d earn that much. You could put your savings into a cash Isa – you can shelter £20,000 a year in one and there will be no tax to pay. But if you’ve a large sum of money and can handle some risk, you might be better using your Isa allowance to invest instead. See our guides here.

3. Look at the new names. The so-called challenger banks such as Atom, Aldermore, Marcus (the new Goldman Sachs account) offer some of the best deals around. Check up to date savings rate tables for the top deals. We like those from www.thisismoney.co.uk and https://savingschampion.co.uk. Current good deals include Kent Reliance, Virgin Money and the West Brom (all paying 1.5% easy access) and Marcus (1.49%). If you are willing to give notice then you can get higher rates: Gatehouse has 1.87% for a 120 day notice account.

4. Consider fixing. You can get 2.05% fixed for a year with Atom Bank or 2.7% if you lock your cash away for five years. But there are downsides: you can’t usually get at your money during the fixed rate period (so they aren’t for money you might need in an emergency) and if base rate goes up, you could be locked into an unattractive rate.

5. Get children saving. Getting your children into the savings habit is a useful lesson for them to learn. But you need to make sure they get a good deal. With kids’ accounts, the high street is a good option – you want a branch so they can put their Christmas cash away easily. There are a few accounts paying 2.25% - including the Skipton Building Society. Halifax pays 2% on its Kids’ Saver on £1 and there’s a large branch network. If you’re saving for a child (as opposed to them saving their own money) then look at Junior Isas – Coventry BS is paying a chart-topping 3.6%. and Santander 3.25% if the parents have a 123 or Select account.

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Saturday, 15 December 2018