Why bother to save?
You may feel that it’s really not worth saving when interest rates are low. But unexpected expenses do crop up – and that’s where having a cushion of savings is – literally – worth every penny. But how do you make sure you’re getting the very best return?
Easy access account
An easy access account is an obvious starting point, but interest rates are pretty low – despite last year’s rate rise. As I write this, the most you can get is 1.3% so your savings will lose value once you take inflation into account.
Money in the bank - Current accounts
If you’re disciplined about your spending, you could save using your current account. Several banks pay decent rates: with Nationwide it’s 5% on the first £2,500 (for the first 12 months). Tesco Bank, TSB, Lloyds and Bank of Scotland all pay 3% on up to £3,000 – with Tesco Bank the rate lasts until April 2019.
Regular savings accounts
Regular savings accounts do exactly what they say on the tin. You can save up to £300 a month (the limit depends on the bank) and earn up to 5% interest with Nationwide, First Direct, M&S Bank and Santander. But you can only open one of these accounts if you also bank with them.
Is a cash ISA worth it?
An alternative is a cash ISA, where all the interest you earn is tax free. However, thanks to a rule change introduced by George Osborne (when he was chancellor), you can get up to £1,000 in interest a year from ordinary savings accounts without having to pay tax. So the tax advantage of cash ISAs really comes into its own if you have a large amount of savings.
Having said that, some banks pay a higher rate on their cash ISAs – hence you’ll always find that it’s worth checking what’s on offer.
You can get up to £1,000 in interest a year from ordinary savings accounts without paying tax
How to get the best savings account
With low interest rates, you might think it’s not worth switching your savings to get a better interest rate, but every penny helps! So, make a note to check the rate every six months. You might be shocked at how little you’re getting! Check at least two comparison sites as they don’t always give the same answer. We like Savingschampion.co.uk because the information is clearly set out. You can also sign up for a free service that will tell you when a better rate comes along. Moneysavingexpert.com is also good and has up-to-the-minute best-buy tables.