Housing Market News And Views Boost And Protect Your Savings

Date Published:

09/01/2009

All the trouble with the banks has left most of us feeling pretty jittery over the safety of our savings. As if that isn’t bad enough, the unprecedented cuts in the Bank of England base rate have resulted in plummeting interest rates on those savings. So where should yours be?

By Caroline Bloor

Research by Moneyfacts.co.uk in January 2009 showed that 38 per cent of savings accounts, for deposits of £5,000, paid an interest rate of one per cent or less. Understandably, savers are increasingly angry and disillusioned. As the base rate falls further, banks and building societies will need to ensure there is still some incentive to save. One thing’s for sure, if you have savings, you’ll have to work much harder in 2009 at making them work for you. Want to know how? Follow our tips.

8 Ways To Boost Your Savings

Watch The Rate
Don’t ignore the letters advising you about changes in the rates on your accounts. ‘With so many accounts now paying such low rates and the number likely to increase, savers really need to make sure they review the rate they are getting,’ says Michelle Slade, analyst at Moneyfacts.

Speak To An Independent Financial Advisor

Best buys are changing on an almost daily basis so seek up to date advice from financial websites comparison tables (such as www.moneyfacts.co.uk and www.defaqto.com) and newspaper money pages. There’s no substitute, too, for seeking specialist advice from an independent financial advisor (visit www.unbiased.co.uk to help you find an IFA).

To Fix Or Not To Fix?

Traditionally, one way of protecting your money from further interest rate falls is with fixed rate bonds (if you are willing to lock your money away for a 12 months or more without access). You’ll need to do your homework and act quickly when you find a good deal. And think carefully before tying yourself in for too long – rates will recover eventually.

Protect Your Money

If you do switch, stick to well established banks and building societies with good reputations, and double check their own websites before applying for anything. ‘What you are looking really for are well capitalised banks that will protect your money. Spread your money,’ advises IFA Peter McGahan, MD,Worldwide Financial Planning. When opening a savings account or taking out an investment product, ask how exactly your money is protected (see the next page for more on protecting your money).

Check The Rate

Comparison sites make it possible to scan the market quickly but may not always have the very latest data. Check during the application procedure that the rate you applied for is still the rate you are being offered.

Don’t Be Fooled By Short-Term Offers

Be aware of the short-term bonuses offered on some savings schemes. These are designed to lift them into the best buy tables to attract customers. The rates are then dropped later. So for the real rate of return, strip out the bonuses. Or if you are organised enough to move your money after the bonus expires, it is possible to take advantage of some good deals.

Use Savings To Reduce Your Debts

If you have any money you don’t need easy access to, another option is to use it to reduce your outstanding debt (such as credit card or mortgage) – especially if you can’t find a savings account that pays more in net interest than your debt is costing you. But watch out for early repayment penalties.

Use Your ISA Allowance

If you’ve got money to put away, don’t forget you can put up to £3,600 a year into a cash ISA (individual savings account) where interest is paid free of tax - which gives an immediate boost to your return. ‘Make the most of your tax-free benefits first, and then look to other easy-access savings accounts,’ says Andrew Hagger of moneynet.co.uk.

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