How to get decent interest on your savings

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Liz Dunscombe

Liz DunscombeSince the Royal Mail decided that it was no longer going to redeliver for free letters with a forwarding address added by the initial receiver, I have been opening my son’s mail (with his permission I might add) as he’s away at university.

Last week he got a letter warning him that the bonus interest rate he had been receiving on his savings account was about to end and the new rate was 0.5% – sadly he informed me that this was unimportant as there were only a few pence in the account!

But this does illustrate the fact that if you are trying to save, getting a decent amount of interest on your savings isn’t an easy task at the moment. Here’s what you need to consider:

  • The first issue for any saver is what level of access they require to their money – instant, a fixed notice period or a fixed saving period.
  • The general rule is the longer you lock your money away for, the better the interest rate – however with interest rates being so low at the moment, locking money away for a number of years at a fixed rate could see you losing out if interest rates do start to rise.
  • The other advantage of making our money harder to get at is it prevents a moment of weakness over a totally gorgeous pair of boots from wrecking our holiday fund! But then it becomes a balancing act because you need to make sure that you won’t lose all your interest if you need to withdraw your savings because the car blows a gasket.
  • A bit of internet research will tell you the current best interest rate for the type of savings account you want, but these deals are often short lived so always do a final check on the day you’re actually going to open the account.
  • Other factors you’ll need to consider are whether you are happy to save online or whether you want to be able to walk into a branch, whether you are going to save a regular amount each month or have a lump sum now and whether you pay income tax or not.

graph made of pound coinsThe key message is to keep an eye on the rate of interest you are getting – not all account providers are so thoughtful as to let their customers know that they are about move to a pathetic rate – and be prepared to move your money around regularly.

Liz Dunscombe, from the money education charity Credit Action, is mum to a pair of rather tall, adult (well in age anyway!) boys. Her passion is helping people to manage their money well, and watching the transformation that a well-constructed budget can bring to a family.