Five easy ways to earn 6%+ on your savings

Tired of earning peanuts on your savings? Find out about the easiest ways to get a far better return on your cash.

Savers are still having a pretty bad time of it. It's no great surprise to hear that traditional savings accounts are being deserted in favour of riskier investments with the potential to create far better returns.

To illustrate exactly what I mean, here's a rough summary of the best savings rates you can hope for today:

You might be quite happy to earn a fixed annual rate of 5% or so over the next few years. But those who want more for their money will need to be a bit more creative.

Here are five different ways you could get a better return. Most of them involve taking on more risk than you would with a standard savings account. But remember you don't need be an investment expert to do well out of any of them - although we would recommend you join our Make money from the stock market before you take the plunge into the stock market.  

1. Index-trackers

Regular readers will know we're big fans of index-trackers here at lovemoney.com HQ. Trackers funds mirror the performance of an index by holding shares in all the companies quoted on it. A FTSE 100 index-tracker, for example, will invest in all the top 100 UK firms.

If the index rises 10%, the value of your investment will increase by 10% too - or thereabouts allowing for charges and a tracking error. But equally, a drop of 10% means your fund will plummet by roughly the same amount.

So a tracker will never beat the market, but it will never lag behind it either. If you opened a FTSE 100 tracker 12 months ago I think you would be pleased with your decision since the index has grown more than 23%. But, don't forget, fortunes can easily change.

If this is the first time you're thinking about investing in a tracker tax-efficiently, take a look at my recent video on how to invest your first stocks and shares ISA.

2. Exchange-traded funds (ETFs)

In simple terms, ETFs are like a halfway house between investment funds and shares. Most ETFs invest in share indices just like tracker funds, although others invest in different assets such as commodities, emerging markets, bonds or currencies.

The aim here is to replicate the performance of a specific market, with the ETF providing instant exposure to the particular sectors you want to invest in. And, just like individual company shares, ETFs are bought and sold on a stock exchange.

Although index ETFs are very similar to index-trackers, they have the advantage of super low fees. According to iShares, which offers over 400 ETFs, the average total expense ratio* (TER) for equity funds is just 0.32%, with no stamp duty to pay on your investments. This makes them even cheaper than most index-trackers.

You can also invest in ETFs through a self-select ISA to earn tax-efficient returns.

3. A fund of funds

But don't forget index-trackers and index ETFs will never outperform the market. If you want the opportunity to do better, you could try investing in an actively-managed fund where a fund manager will pick stocks with the aim of beating its benchmark.

Managed funds are far more expensive than trackers or ETFs to cover the cost of the manager's expertise. But the trouble is, achieving the feat of beating the market is an awful lot easier said than done. Many managed funds produce worse returns even though the TERs are much higher.

One potential solution is to choose a fund of funds. This should give you exposure to some of the best-performing managed funds on the market, allowing you to achieve greater diversification and spread your risk.

But the major drawback is cost. Fund of funds are more expensive than ordinary managed funds, and therefore the returns need to be even greater to offset these charges.

4. Zopa

If investment funds sound a bit too risky for your liking, you could look to a completely different way to invest - Zopa. Zopa is a 'social lending site' that enables you to lend money - anything from £10 to £25,000 - to other people in return for an attractive rate. You'll need to be able to lend for a period of three or five years.

You set the rates you want to earn on your money. In the last 12 months, lenders have made an average annual return of 7.9% (after a 1% fee but before bad debt).

You can spread the risk of default by lending to a wide range of borrowers, and you can lend in chunks as small as £10 if you want to. All borrowers will be assessed for credit worthiness before being accepted by Zopa. Find out more about managing risk and check out our video on Zopa.

5. A high interest current account

Finally, if you don't want to take any risk with your money at all, why not put some of your savings into a high interest current account? You can earn a fantastic fixed rate of 6% for a year. Top choices include the Alliance & Leicester Premier Direct Current Account and the Santander Preferred In-Credit Rate Account.

But these accounts are only good for the first £2,500 because cash over this amount will earn just 0.10%. And you'll need to fund the A&L account with £500 or more a month, while accountholders at Santander will need to pay in at least £1,000 a month. However, you can immediately withdraw this money. Read Earn 6% on your easy-access savings for more on how to set up this current account as an easy access savings account.

If you're after other weird and wonderful ways to get a better return, why not ask the lovemoney.com community for their tops tips at Q&A?

*The total expense ratio refers to the total cost of running the fund including annual management charges and any other relevant fees.

More: The worst returns for savers since 1978 | Earn a better rate on your savings