Savings rates might be low, but there are plenty of ways to fight back and ensure you're getting the best rate possible...
The past year or so has been pretty depressing for savers. Most of us have had to watch in despair as the interest rates on our savings accounts have plummeted and plummeted.
In fact, according to recent research from Moneyfacts, although there's been no change in the base rate since the start of March, 10.1% of variable rate savings accounts have their seen rates reduced. By contrast, only a tiny 3.5% of accounts have seen rates increase!
This really does make uninspiring reading. But before you all cry out that this is an outrage and give up the idea of saving for good, here are six ways to make sure you're getting the very best rate on your savings.
1) Shop around
Here at lovemoney.com HQ, one of our mottos is to always shop around. If your savings account is currently paying a pitiful rate of interest, don't put up with it! Shop around for a better one.
Doing a bit of research might sound boring, but it'll be well worth it and you might be surprised how quickly you can do it. You can compare savings accounts at our savings centre to help you find one to suit your needs and one that pays a decent rate of interest. Once you've found one, get applying!
2) Make the most of bonuses
Bonuses are a bit like Marmite - you either love them or you hate them.
The problem with bonuses is that they temporarily bump up the overall interest rate on your savings account - making it look very attractive. However, once that bonus expires, you're likely to be left with an account paying an utterly pathetic rate of interest - meaning you need to move your savings yet again to a more competitive account.
But on the other hand, fixed-rate bonuses guarantees that you'll get at least the bonus rate for a set period - so if the bonus is 1%, your rate definitely won't follow below 1% for that period. And let's face it, in the current environment any kind of guarantee is well worth having.
So providing you are prepared to keep shifting your savings around, opting for a savings account with a bonus can be a good decision. Just watch out for savings accounts which offer a variable rate bonus (as a opposed to a fixed one) - such as the Alliance & Leicester Online Saver Issue 6 Account - as there can be no guarantee the bonus rate won't change. Read more in When a bonus isn't a bonus.
A good option, however, is the AA Internet Extra Account which offers a competitive interest rate of 3.15%. This includes a fixed bonus of 2.65% for the first year. So make sure you take advantage of this bonus, but be prepared to jump ship as soon as the 12 months comes to an end - otherwise you'll start earning just 0.5% on your cash.
3) Fix it
If you know you won't need to get your hands on your cash immediately, you could consider choosing a fixed rate bond as you're likely to get an even better rate of interest. Just bear in mind that you won't be able to make withdrawals during the term of the bond, so only take out a bond if you're disciplined enough to leave your funds untouched.
If you are going to opt for a fixed rate bond, I would recommend sticking to one that lasts one or two years, rather than three, four or five years. That's because if interest rates rise over the next couple of years and you're still locked in, you could find yourself stuck with an account that is no longer competitive.
If you're after a one year bond, a good option to consider is the National Savings & Investments 1 Year Guaranteed Growth Bond, which offers a fabulous interest rate of 3.95% for one year (if you have £500 or more to invest). Alternatively, if you're prepared to lock up your money for two years, the AA Internet 2 Year Fixed Rate Savings Account offers an even better 4.35%. Find out more about fixed rate bonds in The top 16 savings bonds.
4) Make your current account work harder
It's not just savings accounts that can make you money. Some current accounts will actually reward you with a better return than most savings accounts.
If you don't believe me, take a look at the Alliance & Leicester Premier Direct Current Account which offers an impressive interest rate of 6% for the first year on balances up to £2,500. Just bear in mind you'll need to pay in £500 a month (which you can immediately withdraw).
Similarly, the Abbey Bank Account - Preferred In-Credit Rate account also pays the same rate of 6% for one year (on balances up to £2,500). But this time you'll need to pay in £1,000 a month. Again, you can immediately withdraw this.
Find out more in Earn 6% on your easy-access savings.
5) Go tax-free
A great way to ensure you're getting the best rate for your savings is to invest in tax-free savings. So if you haven't already used up your ISA allowance for this tax year, make sure you do. You don't want to throw this opportunity away! You can deposit up to £3,600 in a cash ISA (or £5,100 if you're over 50) every tax year.
The First Direct cash e-ISA offers an interest rate of 3% which is fixed until 9 November next year. Alternatively, the Standard Life Direct Access ISA offers a variable rate of 2.65%. Both of these accounts can be opened with just £1 and both are easy access.
Admittedly, these interest rates might not sound terribly exciting. But don't forget they are tax-free. So effectively, for the First Direct e-ISA, the interest rate would be the equivalent of 3.75% AER for a basic rate taxpayer, and 5% AER for a higher rate tax payer.
Similarly, for the Standard Life ISA, the rate would be the equivalent of 3.31% AER for a basic taxpayer and 4.42% AER for a higher rate taxpayer - doesn't sound quite so bad now does it?
6) Choose Zopa
Another option to consider is Zopa. Zopa is an internet-based peer-to-peer lending business which allows lenders to achieve attractive returns on their money while borrowers can get their hands on cash at competitive rates.
Over the last 12 months, the average return earned by lenders was an impressive 8% - that's after fees but before bad debt.
You can choose to lend through Zopa markets for three or five years, and set the rate of return you want to earn on the money you lend out. Borrowers are fully credit checked and risk assessed and your money will be spread across different borrowers to manage the default risk. Watch our video on Zopa to find out more.
Build up your savings
Once you've got the best rate, the next step is to build up your savings. Here's how to do this in three simple steps:
Good luck!
Get free help from lovemoney.com
If you need a bit of help getting into the savings habit, we can help.
First, adopt this goal: Build up your savings
Next, watch this video: How to save when you've got no money
And finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?
More: The best place for your life savings | Great savings with 100% security