How to beat record low savings ratesSavers are worse off than ever due to low rates

13 May 2016

There are still some attractive savings deals available if you're prepared to shop around.

Savings rates have fallen to record lows following hundreds of rate cuts over recent months. 

Which? research reveals there were 1,440 rate cuts across the savings market last year - and a further 230 rates have dropped in 2016. 

Although low interest rates are welcomed by mortgage customers, savers are left with dwindling returns for their hard-earned cash.

However, there at still some attractive deals available for those who shop around.

Here, we highlight the best ways to make sure you're getting the most from your savings and investments.

Avoid zombie savings accounts

Many accounts on the market pay rock-bottom interest rates. First Direct's Savings Account currently pays just 0.05% AER, while Santander's Easy Isa offers just 0.1% AER, and there are many more offering similarly poor returns. 

To ensure you're getting a competitive deal, it's never been more important to keep an eye on the rate you're receiving, and to switch if necessary.

The Which? Money Compare savings and Isa tables let you search hundreds of savings accounts and Isas from providers large and small to find a great savings rate based on quality of service as well as cost and benefits.

Utilise your personal savings allowance

The new personal savings allowance (introduced in April) may make traditional savings accounts more appealing for millions of people. 

This is because basic-rate taxpayers will have no tax to pay on the first £1,000 of interest they earn in a single tax year. Higher-rate taxpayers will have no tax to pay on the first £500. 

At current rates, this means it's now possible to deposit tens of thousands of pounds in a traditional savings account without paying tax on the interest this year.

Which? Money Compare table: instant-access savings accounts - hundreds of deals compared

Continue to bear cash Isas in mind 

Although the personal savings allowance seems generous while interest rates are low, this may not be the case when they start to rise.

Isas continue to provide a tax-free shelter for your savings, regardless of how much money you accumulate over time. We think they remain an attractive option, particularly if you're a higher-rate taxpayer or are likely to become one in the future. Your annual Isa allowance for 2016-17 is £15,240. 

Many Isas now offer increased flexibility, allowing you to withdraw funds and replace them without it affecting your annual allowance, as long as you do so in the same tax year.

Which? Money Compare table: instant-access cash Isas -  compare hundreds of Isas

Make the most of your current account  

Higher interest rates are available through current accounts paying interest on credit balance. 

For example, TSB's Plus account pays 5% AER on balances up to £2,000. Alternatively, Santander's 123 account pays 3% AER on balances between £3,000 and £20,000, although this account comes with a £5 monthly fee.   

Find out more: best bank accounts if you stay in credit - see our comparison tables  

Use regular savings accounts

As savings rates continue to fall, the regular savings market has seen an increase in rates, especially to deals made to run alongside a current account.

If you have a bank account with First Direct, HSBC or Marks and Spencer Bank, you may be eligible for their regular saver accounts, each paying 6% AER. Alternatively, Kent Reliance pays up to 4% AER on its Regular Savings account, which is open to all new customers. 

These accounts typically come with restrictions, including a cap on the amount you can pay in each month and a minimum monthly deposit. Some may not allow you to access your money for over a year. 

Which? Money Compare table: regular savings accounts - find a great deal

Consider investing your money  

If you're happy to take some risk with your money, investments offer the possibility of improved returns.

The first port of call for investors should be a stocks and shares Isa, which is a tax-efficient 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.  

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.

You should only invest if you're prepared to take the risk that your investments can go down, as well as up, in value.

Find out more: the beginner's guide to investment - all you need to get started as an investor

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Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.