Find out how you could earn more money by simply switching to a better savings account...
If you’ve been trying to save over recent months, you’ll know just how frustrating it can be. Interest rates on savings accounts have been pretty pathetic for the past few years and as a result, many of us have felt more inclined to stuff our savings under the mattress than in a bank.
In fact, recent research from Which? has revealed that almost half of the 1,200 plus savings accounts in the UK pay 0.5% interest or less and one in four pays 0.1% or less. So it’s not surprising that many of us have simply given up.
This is not the right approach. The fact is, if you dump your rubbish savings account and switch over to a savings account that pays a better rate of interest, you could be a lot better off. In fact, Which? reckons British savers would be £12 billion better off a year to be exact. And that’s equivalent to £322 for every saver! You'd have to be mad to turn that down!
Best for easy access
So let’s take a look at eight of the best easy access savings accounts on the market right now.
|
Provider and account |
Interest rate |
Minimum deposit |
Other |
|
2.99% |
£1,000 |
Includes 12 month bonus of 1.45%. One penalty-free withdrawal permitted per year |
|
|
2.90% |
£1 |
Includes 12 month bonus of 1.25% |
|
|
2.75% |
£1 |
Includes 12 month bonus of 2.25% |
|
|
2.61% |
£1,000 |
One penalty-free withdrawal permitted per year |
|
|
2.60% |
£1 |
Rate rises to 2.80% for current account holders. One penalty-free withdrawal permitted per year |
|
|
2.60% |
£1 |
Penalty-free withdrawals only permitted in April |
|
|
2.60% |
£1 |
Includes 12 month 1.35% bonus |
|
|
2.60% |
£1 |
Includes 12 month 2.10% bonus |
The Nationwide MySave Online Plus offers the most competitive interest rate at 2.99%. However, bear in mind this includes a bonus of 1.45% for the first year, so once the bonus expires, you may need to move your money elsewhere. You will also need a deposit of at least £1,000.
The major drawback to this account is that you can only make one penalty-free withdrawal per year. If you make more than that, you’ll lose the bonus and receive a lower rate of just 0.10% for the month in which the withdrawal takes place.
Inflation is the enemy when it comes to your savings because it attacks real returns, and reduces the purchasing power of your cash.
So if you know you’ll need to get your hands on your cash more frequently, you might prefer the Post Office Online Saver which has no withdrawal restrictions and offers a slightly lower rate of 2.90%. This also includes a bonus of 1.25% for the first year and you only need a deposit of £1.
Best for fixing
If you’d prefer to lock up your funds for a set period, you might want to opt for a fixed rate bond instead. Personally, I would be reluctant to lock up my money for more than three years, as it seems likely that interest rates will rise in the next year or so.
So here are the best options for one, two and three year bonds.
|
Provider and account |
Interest rate |
Term |
Minimum deposit |
|
3% |
1 year |
£500 |
|
|
3% |
1 year |
£500 |
|
|
3.60% |
2 years |
£1 |
|
|
3.50% |
2 years |
£1,000 |
|
|
4.15% |
3 years |
£1 |
|
|
4% |
3 years |
£1,000 |
As you can see, interest rates for one year fixed rate bonds aren’t really any higher than the best rates for easy access savings accounts so you may find it’s not worth locking up your money in a bond.
However, rates improve if you’re prepared to tie up you funds for two or three years, with the Bank of Cyprus UK Bond offering the best interest rates at 3.60% and 4.15% respectively.
Switching is easy
Of course, switching savings accounts might sound like a lot of hassle. But it actually doesn’t take that long - particularly if you’re applying online. Yes, you’ll probably be asked to send off some ID, but once you’ve done that, the lender should sort everything out for you. And given that this simple process could be earning you an extra £322 a year, I think it’s well worth the effort.
Another way
If you’re looking for an even better return on your money, there are a few alternatives to using a conventional savings account.
Zopa is a social lending platform that allows you to lend to thousands of other people for a period of three or five years. To spread the risk of default, your money is divided between a number of borrowers and you can choose the interest rate you want to earn.
Ed Bowsher takes a look at Zopa, an interesting alternative to the high street banks
Over the past year, the average rate enjoyed by lenders on money lent through Zopa was 8.1% (after fees and before bad debt) – so considerably better than what you’d earn on a standard savings account.
Alternatively, Funding Circle allows you to lend to small businesses. You can lend between £20 and £2,000 per business for a period of one or three years. Again, you divide your money between several different businesses to spread your risk. There’s no limit on how much you can lend in total.
Funding Circle only launched 10 weeks ago and already has 1,600 members who have invested a total of £1 million. The average interest rate earned by lenders has been 8.2%, and the average amount invested has been £2,000.
At the moment, this service is fee-free. However, from 2011, lenders will have to pay a 1% annual servicing fee. You can find out more in Earn up to 9% on your savings.
So don’t put up with earning a pitiful amount of interest on your savings account any longer, and switch to a better account today! You could be £322 better off!
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