Savers have been underwhelmed with the banks’ response to the Bank of England's recent interest-rate rise. According to Moneyfacts, in the first two weeks of November there were just 49 rate rises. By comparison, in August 2016, there were over 300 savings rate cuts following the decision to drop the bank base rate to 0.25%.
You therefore need to take these 5 steps to make the most of your savings:
1. Don’t sit and wait for your rate to change.
In some cases you won’t get the full rise passed on, and in others, your rate isn’t going anywhere. Meanwhile, there has been plenty of movement among the most competitive accounts. Since the Bank of England raised rates, for example we have seen the highest return on a one year fixed-rate account rise from 1.86% to 1.95%. The best rates are therefore available to those who shop around. Check out the best savings deals.
2. Consider the challenger banks
The challenger banks are competing hard - with some of the highest rates around. It can take a leap of faith to consider a newcomer to the banking scene, but you can take comfort from the protections in place. These banks still have to adhere to the same rules as traditional banks, and the first £85,000 you save with each banking group is still protected under the Financial Services Compensation Scheme.
3. Look at alternatives to standard savings accounts
There are some alternatives offering higher rates. You can, for example, keep some of your savings in a current account offering up to 5% - as long as you are confident you have the discipline not to spend the money. You can also earn up to 5% in regular savings accounts, so it’s worth checking if these kinds of accounts meet your needs. Check out the best high-interest bank accounts.
4. Don’t keep too much in easy-access accounts
Typically we need three to six months’ worth of expenses we can get at easily, but once you have this, it makes sense to consider tying up a portion of your cash savings for the longer term in return for higher rates. The Moneyfacts figures show that since November 1, only 31% of rate rises have been applied to easy access accounts, and even then, the average variable rate rise was 0.21%. It means that much of the competition, and many of the best rates, are available for one to five year bonds - check out the best bond rates.
5. Don’t assume cash is the best home for all your money
There are some very good reasons for keeping some of your portfolio in savings, but the fact that no standard savings account keeps pace with inflation demonstrates the risk in keeping too much in cash. If there’s a portion of your portfolio that you expect to leave untouched for five to 10 years or more, it’s therefore worth considering whether you could consider moving some of it into share-based investments. Your money will be at risk, but over the long term it has the potential to grow faster than cash.
Thanks to Sarah Coles at Hargreaves Lansdown