The latest inflation figures published on Tuesday should act as a reminder that savers will need to switch to a better deal to get decent returns.
With the RPI inflation rate reaching 5.2% in September 2011, these are difficult times for savers. Getting returns that even match inflation is virtually impossible at the moment. That’s not to say that you shouldn’t switch to get a better savings rate.
In order to achieve a rate that means that your savings pot isn’t being eroded by inflation a basic-rate taxpayer needs to be earning 6.5% before tax, while higher-rate taxpayers require a pre-tax interest rate of 8.66%.
The fact that NS&I’s index-linked savings certificates have now been withdrawn further reduces the options for savers. There are still some index-linked accounts out there that do track inflation.
Why should I switch my savings?
When we carried out analysis on the savings market as part of the Great British Savings Scandal in October 2010 we found that savers were losing out to the tune of £12.3 billion per year by keeping their money in average-paying accounts rather than Best Rate accounts.
This equated to every saver with an easy access or notice savings account or Isa missing out on £322 worth of interest each year. With rates at the top end of the market having risen over the last year, the figure is probably nearer £350 now.
So despite the current doom and gloom for savers with the rising inflation rate, it’s still worth your while to switch to a higher-paying account if your money is languishing in an account paying 0.5% or even less.
How to set about switching
Following these steps should help get your money growing as much as possible:
Step 1 – Find our your rate
You should do some research before you decide which account is best for your requirements. Our research has shown that many people don’t know what rate they’re getting on their savings accounts. Using our Which? Savings Booster to find out the interest rate should be your first move.
Step 2 – Instant access or fixed-term?
Choosing the type of account should be your next decision. Assess whether you need instant access to your cash or can afford to tie it up for a set period – the longer you tie your money up for, the better rate you’ll get. Our savings Best Rate tables will then highlight the current market-beating rates.
Step 3 – Apply for your account
Now you’ll need to actually switch to the better account that you’ve found. Once you’ve chosen the account for you, apply to the provider in question. It will probably need to see two forms of ID – one to prove who you are and one to prove your address.
Step 4 – Transfer your savings
The new provider will open the account for you and let you know once this is done. When the new account is open, transfer the funds from the old account. It also makes sense to close your old account.
Step 5 – Keep your eye on rates
Once you’ve switched accounts, don’t rest on your laurels. If the new account has an introductory bonus, make a note of when it ends as you may need to switch again – and keep a regular eye on your rate to make sure it stays competitive.
- Which? Best Rate savings accounts – check out all the Best Rates on different types of savings accounts
- Which? Best Rate Isa accounts – choose an Isa if you haven’t used this year’s tax-free allowance
- Which? Best Rate instant access accounts – the best products if you need quick access to your cash