As the government’s key measure of inflation, the Consumer Prices Index (CPI), stood at 3.4% in May, it’s more important than ever to make your savings work as hard as possible. The Which? Money experts have compiled 10 top tips to help boost your savings.
1. Chase the best rate and switch accounts: Regularly check the interest rate you are receiving to ensure you are getting the best deal for your money. Some banks pay as little as 0.05% interest on savings balances. If your account is paying a poor interest rate, switch to a Best Rate savings account. Internet-only easy-access savings accounts currently offer the most competitive rates.
2. Best for consistency: If you don’t want to keep switching for the best rate, choose an account that pays the most consistent rates. The best accounts for consistency (easy-access savings and easy-access cash Isas) show the top three accounts that have paid above average interest rates for at least the past three years.
3. Make use of your cash Isa allowances: Use your tax-free cash Isa allowance (£5,100 this year) before putting your money into a taxable savings account (basic-rate taxpayers are taxed at 20% on their savings account interest, higher-rate taxpayers at 40%). See easy-access cash Isas and one-year fixed-rate cash Isas for the best deals.
4. Get a better interest rate with a fixed-rate savings account: Fixed-rate savings accounts currently pay more competitive rates than instant-access or notice accounts. Before choosing a fixed-rate account, make sure you are able to tie your money up for the specified term as withdrawals or early closure is subject to a penalty fee.
5. If you’re a non-taxpayer, get your interest paid tax-free: If you are a non-taxpayer (if your total income from all sources comes to less than your personal allowance), you can register to have bank and building society interest paid gross (without tax deducted) by completing form R85, available from HMRC or your bank or building society. You can claim back any tax already paid by completing form R40 available from HMRC.
6. Switch your savings into your partner’s name: Transfer savings and investments to your husband, wife or civil partner if they pay a lower rate of tax than you do. See our guide to tax and your partner for more information.
7. NS&I savings certificates: National Savings & Investments (NS&I) offers tax-free fixed-interest and index-linked savings certificates. It also offers other tax-free products such as its cash Isa and children’s bonus bonds. Make sure the interest rate is competitive though, as you could be better off with a Best Rate savings account, even after paying tax.
8. Set up a sweep on your current account: Some banks offer to transfer any money that’s left in your current account at the end of the month into a higher-paying savings account. This is known as a current account sweep. Check with your bank if it offers this facility on its current account, but watch out – some banks, such as RBS, sweep your extra cash into a savings account paying just 0.1%.
9. Premium bonds: Instead of paying interest, premium bonds are entered into monthly prize draws where you can win £1 million jackpot, plus over a million other tax-free prizes. The minimum purchase is £100 up to a maximum holding of £30,000. With Bank of England base rate still at 0.5%, you may decide to forego the interest on some of your savings in exchange for the chance of winning a premium bond prize.
10. Children’s savings accounts: Most children don’t pay any tax on the interest in their savings account, so long as the interest they receive is below their personal allowance (£6,475 in 2010/11) – very likely for the vast majority of children. Stop children being taxed at source on their savings by completing a simple form (R85) on their behalf. Be careful though: If you give your children money and it makes more than £100 a year before tax in interest (or £200 if both parents give money), all this income (not just the income over £100) will be taxed as if it were your own.
Which? Best Rate savings accounts
Which? compares savings accounts based on stringent criteria in order to help you make the most of your money. We look at standard savings accounts as well as fixed rate savings accounts and cash Isas.
For more information on savings accounts and how to choose the right one for you, read the Which? advice guide.
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