Savings, interest rates, investments…..not the most exciting of topics right? But it is important. You may have got some savings behind you, but are you really making the most out of what’s in the bank?
If all of your money is locked up in a savings account, it’s unlikely to be yielding the highest returns. Low interest rates are plaguing savers in the current climate; and if returns are really low, there’s a risk of inflation chipping away at your savings.
So, if you want to make the very most out of your savings, here are some other options to consider:
Consider opening an ISA
First up, you could open a cash ISA – if you haven’t already, that is. Unlike standard savings and current accounts, ISAs offer tax-efficient ways of saving (thank you very much). But there’s an annual cash deposit limit, which stands at £15,240 for the 2016/17 tax year which you can use to pay into a cash ISA, a stocks and shares ISA or combination of the two.
For greater gains (but more risk – you may lose some or all of your money), you could consider a stocks and shares ISA, where your money is invested in things like company shares, investment trusts or Government bonds. Then there are Flexible ISAs, which allow you to take money out and replace it tax-free (in the same tax year) as well as Help to Buy ISAs for first-time buyers.
If you’re looking for a better chance of higher returns, you should consider longer-term investments. Barclays’ 2015 Equity Gilt Study, which monitors UK asset performance, suggests that the longer share-based investments are held, the greater the chance they will outperform cash-based investments. Across an 18-year period, there was a 99% chance of shares outperforming cash; this dropped to 68% across a 2-year period.
Your best option will depend on your financial situation, and the level of risk you’re willing and can afford to take on. The value of Stocks and Shares ISAs can go down and you may get back less than you invest.
Got an ISA? Then use your allowance!
One step ahead of us? Very well. But are you reaping the full benefits of your ISA? Apparently just 16% of savers are, revealed a Barclays study conducted in March 2016. According to the results, savers are losing out on nearly £1 billion in ISA earnings a year by not taking advantage of their Cash ISA allowance. Unlike the lotto, your allowance won’t rollover, so you have until 5 April 2017 to save as much as possible.
Frugality is one of your finest attributes and you’re always on the hunt for the best deals, whether it’s car insurance, a phone contract, or a toilet roll multipack. But are you equally as scrupulous with your savings? If you opened an account through your bank because it was the easiest thing to do, then you could be missing out. Bone idleness doesn’t pay off in this biz; shopping around, and comparing a range of deals, is the only way to guarantee the biggest bang for your buck.
Save regularly and you may be rewarded with high rates of interest – sounds good, huh? If you commit to always banking some dosh on payday, some current accounts offer up to 5% in annual interest, MoneySavingExpert* explains, provided you meet certain requirements, for example paying in a minimum each month and, more often than not, an upper limit on the amount you can save. It’s a good way to develop good spending habits but you need to be dedicated – i.e., you need to stick at it longer than your New Year’s resolution to benefit.
Consider a tracker account
Ever felt hard done by by a provider that didn’t pass on interest rate increases? To avoid a repeat, you could consider opening a tracker account. It’s exactly what it says on the tin: an account that tracks the Bank of England base rate and kindly passes on rises to savers.
Beware of the bonus
A provider lured you in with an unbeatable introductory offer, but now that offer is nearing its end. At this point, you should consider parting ways. It won’t be an emotional farewell, at least not for you anyway, as you may be able to take advantage of a better deal elsewhere. Jot down the dates of when any bonuses end in your diary. That way, you’ll know when to start scanning the market for the next offer.
We’ve based the information in this article on our understanding of HM Revenue & Customs practice as at November 2016. Tax rules are subject to change in the future and depend on your individual circumstances.
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