Get the best returns from your savings

The average person in the UK had £1678 of savings last year, HOWEVER, interest rates are incredibly poor at the moment with more than 4 in 10 Savings Accounts paying a paltry 0.5% interest OR LESS

So where is the best place to put your cash for the greatest returns?

To start off you need to ask yourself a series of questions…..

* Am I willing to take a risk? Usually the greater the risk, the higher the potential returns and potential losses. 

* How long do I want to save for? If you have less than 5 years to put away your money, then go for a cash investment. Anything over 5 years and you can afford to ride the peaks and troughs of the stockmarket

* Do I need regular access to my cash? If you want to be able to get at your money easily then look for easy access accounts

* How often will I put money in? If you will be putting in a monthly amount then you need a flexible product that allows you to add money when you can. Some products have a minimum lump sum investment of about £1,000 so watch out for that

* What’s your goal? If you have a set amount in mind or maybe an occasion to save for then try working backwards to decide on how much you’ll need to save and when

 

 The Options

NISAs – CASH

  • If you have ANY money to save, you can earn interest TAX FREE in an ISA.
  • As of July, these became known as NISAs and they allow you to save up to £15,000 in any combination of cash and stocks and shares
  • The interest rates are VERY low, but if you are risk averse and don’t want to put your money away for too long, then a cash NISA is a good place to start looking
  • The most flexible cash NISA is an easy access account where you can put money in and out with no penalty fees
  • Interest rates will either be fixed or variable, and they may include a bonus rate. To get the bonus, you have to keep the cash saved until the bonus date, often the anniversary of you paying in.
  • We are not huge fans of fixed rate NISAs for longer than 2 years. They can leave you stuck on an uncompetitive rate for a long time, with penalties if you withdraw the cash during the fixed rate period
  • FIND OUT MORE about Cash NISAs

 

NISAs – STOCKS AND SHARES

  • There are a number of ways of investing in the stockmarket but one of the easiest is through your NISA. A Stocks & Shares NISA lets you invest money in shares without paying tax on any gains or dividends
  • You can invest your full NISA allowance of £15,000 into a Stocks & Shares ISA every year
  • Stocks & Shares NISAs work best when you can keep money invested for at least 5 years as investment values can go up and down a lot
  • Before you put money into a Stocks & Shares NISA, you need to make sure you understand the basics of investing and that it is right for you
  • ONLY INVEST WHAT YOU CAN AFFORD TO LOSE. Investments can and do go down in value
  • If you can invest for a long time (5 years minimum) then you stand a good chance of your money growing more than it would in a bank. The longer you invest, the greater your chance of growth
  • If you're not confident about what you are doing, then seek advice from an independent financial advisor. Most NISA providers will also provide advice for a fee
  • FIND OUT MORE about Stocks and Shares NISAs

 

Savings accounts

  • There are LOTS of types of saving accounts but as a general rule, the harder it is for you to get at your money, the HIGHER the interest rate will be
  • TOP TIP - If you are part of a couple and one of you pays a lower rate of tax than the other, it's financially worth considering whose name you save in (ignoring issues of trust). Put it in the lower rate taxpayer's name and you'll get more interest.
  • REGULAR SAVINGS In general, a regular savings account will let you save between £10 and £500 every month. If you want to save more than that, you can combine a few. The main advantage is they tend to pay much higher rates of interest but you usually don’t get access to your money for at least 12 months. First Direct Regular Saver has an excellent rate of 6% currently, Lloyds and HSBC are offering 4% to existing customers
  • EASY ACCESS ACCOUNTS have MUCH lower rates of interest (usually around 1%) but you can withdraw your money whenever you like. The eSaver Plus account from Nottingham BS pays a top rate of 1.45% AER on balances over £5,000 and is good for those who want regular access to their savings. The rate includes a 0.86% bonus until 30 November 2015, AA are currently paying 1.4% on their easy access savings account
  • FIXED RATE ACCOUNTS If you are happy to go for a Notice Account where you can only access your savings with an agreed amount of notice (usually between 30 and 180 days) then you can earn interest rates of between 1.95% and 3.2%. However, with a possible rate rise early next year, be warned about fixing for too long 
  • FIND OUT MORE about SAVINGS ACCOUNTS

 

Current accounts

  • There are now even some accounts that pay favourable interest rates for having a positive balance in your current account!
  • The Santander 123 current account gives up to 3% interest if you have between £3,000 - £20,000 in your account, plus you can earn up to 3% cashback on your bills. You'll need to pay in at least £500 a month and set up a minimum of two direct debits but this is a higher rate than most savings accounts
  • TSB Classic Plus pays 5% on balances up to £2,000 but you must pay in £500 a month. Just watch out, the rate has no expiry date and could be changed by TSB if it chooses.
  • Nationwide FlexDirect pays 5% on balances up to £2,500, but only for the first 12 months. After this, the rate falls to 1% but great for the short term. The account requires a minimum monthly deposit of £1,000
  • Lloyds Club pays tiered rates of interest up to 4% on balances between £1 and £5,000. Watch out though, there is a £5 monthly fee unless £1,500 is deposited each month.
  • FIND OUT MORE about Current Accounts

 

Premium bonds

  • Premium Bonds, run by National Savings and Investments (NS&I), are a GREAT and FUN way to save as they are 100% safe with no risks.
  • Premium Bonds are a way to save between £100 and £40,000 tax free
  • Instead of earning interest, each £1 you invest acts as a raffle ticket entering you into a draw for cash prizes
  • There are two £1 million prizes and over a million other cash prizes ranging in value from £25 to £100,000 which are allocated randomly every month
  • You are not guaranteed a prize though so if you want guaranteed interest then this isn’t for you
  • TOP TIP – There is a Premium Bonds tracking service so if you think you might have an unclaimed prize, it is worth trying to trace it, you just never know!
  • FIND OUT MORE about Premium Bonds

 

Peer to peer lending

  • Peer to Peer lending is a GREAT way to grow your savings and became regulated in April 2014.
  • Peer to Peer lending is a GREAT way to grow your savings. You can invest as little as £10
  • In basic terms, it means lending your money to other individuals to earn interest without going through a bank
  • Online companies like Zopa and RateSetter set up the loan, credit check the borrowers for you and then take a small fee.
  • If you need your money back you can within 2 days. 
  • The major benefit is that as the banks aren't involved, the lender can usually set their own interest rate so the return on your savings will be MUCH higher than if you put them in a normal savings account.
  •  If you invested £5,000 over 5 years, the BEST saving account would give you 3.2% interest but you’d get a MASSIVE 6% with a RateSetter peer to peer loan.
  • The best rates at the moment are 6% for 5 years with RateSetter and 3.7% 3 years and 5.2% 5 years for Zopa
  • Although you are not using a bank, Zopa and RateSetter have systems to protect your money if someone defaults so the risk is very low
  • Rapid returns mean you can get your money back with 2 days notice
  • FIND OUT MORE about Peer to Peer Lending

 

Last updated: Tuesday, 24 February 2015

 
 
 
 

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