10 top ways to get the best return on your cash

Savings and ISAs

Jane Baker
Updated on 13 August 2010 | 7 Comments

Savings rates have stayed stubbornly low all year. Find out the secret to better returns here.

I'm sure all you savers out there are totally underwhelmed by the rates paid on cash right now. You could, of course, take a hugely speculative punt on an exotic investment and hope it reaps you far more generous returns. But most of us are a little less reckless.

If this sounds like you, fear not because there are still plenty of ways you can make your money work harder (and they won't keep you awake at night!)

1.Trim tax

Tax of 20% is automatically deducted from any interest earned on savings accounts. But if you're a non-taxpayer there's one very easy way of boosting your return: ask to have your interest paid gross. All you need to do is complete form R85 - you can pick one up from the bank or building society.

If you have a spouse in a lower tax bracket than you, consider holdings savings in their name to pay less tax by using up their tax-free personal allowance first (currently £6,475 for those under 65).

2. Fantastic fixes

You can enjoy higher returns by locking your money up in a fixed rate bond. I recommend you don't tie your savings up over the longer-term because I think iinterest rates will likely remain low in the short-term so there's a good chance today's fixed rates will stay competitive.

If you choose a one-year bond, you can earn 3.1% with the ICICI HiSAVE Fixed Rate Account. Meanwhile, the two-year version of the ICICI Bond pays 3.7%. If you prefer a long-term option, ICICI pays a rate of 4.75% over five years. (All ICICI Bonds require a minimum investment of £1,000.)

3. Rewarding regular savers

Those who want to stash the cash every month should take a look at regular saver accounts where you can earn a better fixed rate for a limited period. On the downside, you'll normally face a penalty if you don't top-up every month, you probably won't have access and there'll be a cap on how much you can save.

If you bank with HSBC and have a Premier Advance, Passport or Graduate Advance Account, you can earn a whopping 8% fixed for a year with the HSBC Regular Saver on savings of £25 to £250 per month.

Meanwhile, First Direct 1st Account holders can enjoy a rate of 5% with the Regular Saver account. Again you can save between £25 and £250 a month. Exactly, the same deal is on offer at Norwich & Peterborough for Gold Current Account customers.

If you don't happen to hold a current account at any of these banks, fear not because you can still earn 4% at a host of other places including Santander and Principality Building Society.

Getting the right savings account isn’t as easy as it seems, but by avoiding these four nasty catches you won’t go far wrong

4. Beware of bonuses

Many of the top easy access savings accounts include a bonus. In fact, the market-leader the AA Internet Extra account pays 2.80% including a fixed bonus of 2.30%. Likewise, the Santander eSaver account pays a rate of 2.75% including a 2.25% variable bonus, while the Birmingham Midshires Telephone Extra Account also pays 2.75% including a fixed bonus of 2.25%. All bonuses last for a year.

Once the bonus has disappeared you may be left with an uncompetitive rate, so don't leave your savings to languish. But that said, an account which pays a fixed bonus which does give savers a guarantee that they will earn a minimum return over the next 12 months.

5. Ditching and switching

If nothing you've read so far has impressed you, try ditching ordinary savings account in favour of switching to a high interest current account.

The best one is the Santander Preferred In-credit Rate Account which pays a fantastic fixed rate of 5% on balances of up to £2,500. But rates this good only last a year and the returns earned on balances over £2,500 are rubbish, quite frankly. To qualify for this deal you'll have to switch your direct debits over to Santander and pay in at least £1,000 a month, but on top of that you'll earn £100 cashback to boot.

If you don't actually want to switch your current account and you have a halthy amount of spare cash, consider the Lloyds TSB Classic with Vantage account which pays 4% on balances of £4,000 to £7,000. Again you'll need to pay in £1,000 a month.

6. Take your savings tax-free

Cash ISAs are a great way of getting more for your money with a tax-free return. You can save up to £5,100 every tax year.

It's true the top ISAs pay even lower headline returns than the best-buy taxable savings accounts at the moment. But given that the rate is tax-free you will be a little better off. On top of that, by stocking up your ISAs now, you'll have more of your money in a tax-free home ready for when rates recover.

7. Be brave with corporate bonds

You could take advantage of higher yields by putting some money in a corporate bond fund. A corporate bond is like a loan to a company which pays a fixed rate of interest to the investor. Bond fund managers trade bonds with the aim of maximising your returns.

The top performing fund over the last year - the Henderson Sterling Bond fund - has a current gross yield of 5.00%*. While the star performer over three and five years - the M&G Strategic Corporate Bond fund - is providing 4.18%.* Thie highest yielding fund at the moment is Rathbone Ethical Bond which is currently paying 7.20% (but note it has not posted the stongest returns for capital growth).

Remember your capital is not guaranteed. If a company goes into default, where it's unable to pay interest to bondholders, performance will suffer. How well the fund does depends on the manager's ability to pick the right bonds.

*Yields provided by Trustnet as at 13.08.10.

8. Think Zopa

Zopa is an online business that allows you to earn good returns by lending money to other people - keeping the banks totally out of the loop. You set the rate you want to earn on the money you lend out.

The average return over the last year was an impressive 8.3% (after fees but before bad debt). Your money will be repaid monthly. You can withdraw it as it comes back to you, but there's no access to your cash while it is held with borrowers.

Your money will be divided across a number of borrowers to spread the risk, but there's always a small chance someone will default. To find out more go to zopa.com.

9. Keep track

No matter where you put your savings in the end, always shop around for the best rates first. Then keep track of whether the account stays competitive. You can do this quite easily by comparing rates at the lovemoney.com savings centre.

10. Finally, set yourself a target

Forget about rates and returns for second. If you have a budget and a target, your savings will grow more quickly. If you need a bit of a kick to get you into the savings habit you've come to the right place - watch this video: How to save when you've got no money.

Compare savings accounts lovemoney.com

This is a lovemoney.com classic article which has been updated for 2010.

More: The best savings account you've never heard of | Earn six times as much interest

Most Recent

Comments

Trev Moore
18 October 2010
Sorry link should be: [url=http://www.ashadegreener.co.uk]www.ashadegreener.co.uk[/url]
REPORT This comment has been reported.
0
Trev Moore
18 October 2010
I have had no defaults with Zopa over the last two tears. Yes there is a risk of borrower default but the risk is spread over many borrowers and so you can make a profit just like the banks do. The loans are not secured, but the credit checks are as good as a bank that would offer a similar unsecured loan. One idea that is not included is investing in generating solar electricity and getting a government authorised OFGEM payout producing around 10% typically. There is a risk that the government will lie to us again and chop the guaranteed payout or the installer will want thousands up front before work starts and then go bust or run off with loads of customer cash. They way I got my [b]14% return [/b]was to find an installer that would fit my equipment for free in return that he could become inspected and qualified. I bought the equipment myself using installer to get almost a trade price (who was supposed to be a Part P qualified elecy already).I found him on Ebay for 99 pence, but I was going the hang around the MCS training school) and paid for scaffolding, his fuel and a separate friends van fuel costs, plus some sundry items like wire, wood, circuit breaker, tywraps, sealant and cable clips etc. The whole lot cost me [b]£12,500 [/b]including VAT at 17.5% rather than the 5% if the man was MCS qualified to start with. Yes, I asked the VAT man if my installer could claim the VAT back retrospectively and the answer was no. The system consisted mainly of 22 BP solar panel creating approximatly 4Kw in perfect conditions. I got 2.5Kw out of it on a sunny day in mid October. It has a output meter on the box (inverter) in the loft and there is another a box near the meter that adds the total amount generated. The amount generated has to be sent to the electric provider every three months and they a cheque for amount generated at 41.3 pence a KWh or Unit never mind who uses it. Also I get an additional 3 pence a Unit for electricity that I don't use myself during the day. The installer cracked about 7 tiles, ripped a bit of roofing felt in two places, fed the cables through wrong tile and had to re-route them, had me running around to fetch two sheets of loft floor boarding, panicked about the weather and scaffolding being ok, generally created havoc for about 4 days, but got there in the end. He also wired up the inverters the wrong way around, but also wired the panel isolators the wrong way around and so they cancelled each other out and it all worked ok. He only fitted 2 screws in the roof brackets that had eight holes and left the solar panel cables dangling on the roof tiles to get their insulation stripped when the wind moved them around. All this was missed by the MCS inspector who seemed to spend 90% of the time on paperwork. I was able put all the faults right myself luckily. I would recommend any one else to get a fully MCS qualified installer in hind sight and pay 5% VAT, but tell him I would like to buy the equipment myself and have it delivered direct so as to save the risky deposit worries. A similar system even with 5% VAT would have cost around £15,000 with BP panels and a good western inverter. A cheaper system using Chinese equipment that is still approved for UK use would have cost around £10,000, but I didn't trust the guarantees and reliability of Chinese panels around seals etc in a British climate. The [b]14%[/b] was calculated from the projected returns on my size of system on a south facing roof at 36 degrees slope, unshaded by trees etc and total cost of £12,500. All this info was put into a government website at: [url=http://www.energysavingtrust.org.uk/Generate-your-own-energy/Cashback-Calculator]http://www.energysavingtrust.org.uk/Generate-your-own-energy/Cashback-Calculator[/url] I you want just free electric try [url=http://www.isissolar.co.uk/]www.isissolar.co.uk[/url] or [url=http://www.ashadegreeener.co.uk/]www.ashadegreeener.co.uk[/url] but you must be south facing etc. Or if you want more it is possible to buy a system for you friends and family, but because they will have the free electric the return would be around 10% only, from the Feed In Tariffs. For systems installed and commissioned after April 1st 2011 or for new properties the tariff (cheques you get back) is less. You will need to install Internet equipment to get the readings also or call around for them every three months.  
REPORT This comment has been reported.
0
Savvy chic
18 August 2010
I have thought about Zopa but have not put any money into it because it is NOT REGULATED. There must be - I should think - a high rate of default, too.
REPORT This comment has been reported.
0

Do you want to comment on this article? You need to be signed in for this feature