This week marks the fifth anniversary of the Bank of England holding the base rate at 0.5% alongside its policy of Quantitative Easing.
Although good news for mortgage customers, a combination of rock-bottom interest rates and the Funding for Lending scheme has seen banks and building societies compete less in the savings market.
The result? Some woefully low interest rates unable to keep up with inflation, with millions of savers watching their hard-earned savings lose value in real terms.
Here, we offer six top tips to make sure you are getting the best from your savings and investments.
How to maximise savings
Avoid zombie savings accounts
Many accounts on the market pay rock-bottom interest rates, such as Ulster Bank’s instant access account which currently pays just 0.01%. Which? monitors the entire market for the best deals daily so that you can avoid these zombie accounts and secure the highest rates.
Go further: Best Rate cash Isas or Best Rate savings accounts – keep an eye on the best deals
Use your tax-free allowance
Saving up to your maximum cash Isa limit each year means paying no tax on your savings. For higher-rate taxpayers, this is a must.
Of course, with the base rate potentially set to rise next year and the end of the Funding for Lending scheme arriving, better Isa deals may soon be on the horizon. With this in mind, it may make sense not to lock your money away for too long.
Make the most of your current account
Although you’ll have to pay tax on the interest earned, some of the highest interest rates are available through credit interest bank accounts.
For example, Nationwide’s FlexDirect account pays 5% on balances up to £2,500 for the first 12 months (1% thereafter). For larger amounts, Santander’s 123 account pays up to 3% interest on amounts up to £20,000, although this involves a £2 monthly charge.
Go further: Best credit interest bank accounts – keep track of which current accounts pay the best rates
Regular savings accounts
If you have a bank account with either First Direct, HSBC or Marks and Spencer Bank you may be eligible for their 6% paying regular savers accounts. Alternatively, Leeds BS pays up to 3.05% on the Regular Saver Issue 3, which is open to all new customers.
These accounts typically come with a handful of restrictions including a cap on the amount you can pay in each month and a minimum monthly deposit. Some may not allow you access to your money for over a year.
Breaching these rules can result in loss of interest or closure of the account, so check you are happy with the terms and conditions of the account before committing to one.
Go further: Best regular savings accounts – find the best tied and non-tied deals
Investments: higher return but more risk
However bad interest rates are on cash savings, you know your capital is guaranteed. But if you are happy to take some risk with your money, investments offer the possibility of improved returns.
Before considering investments, you should make sure your finances are in order. As a minimum, your debts should be under control and you should have a significant amount of savings to fall back on.
Go further: Beginner’s guide to investments – all you need to know to begin investing
Stocks and shares Isas
The first port of call for investors should be a stocks and shares Isa, which is simply a tax-efficient investment account that lets you put money into different types of investment, such as unit trusts, open-ended investment companies (OEICs), investment trusts and corporate or government bonds. You can also buy individual company shares to put into an Isa.
Go further: Stocks and shares Isas – find out how these work and how they can save you money
Debt is likely to be far more expensive to manage than the returns you get on a savings account. If you have a lot of debt, you should aim to pay this down at the lowest rate that you can.
Go further: How to deal with debt – our guide to reducing debt