13 tips and tricks to earn more interest on your savings

Savings rates may have started a slow but steady recovery, but savers' bumpy ride isn't over yet as inflation is predicted to remain high in 2022.

Measuring 5.1% in November 2021, the highest level for 10 years, CPI inflation is outstripping even the best fixed-term interest rates - the highest on the market is 2.08% AER at the time of writing.

But it's still important to shop around for a decent return. There are plenty of things you can do to maximise your savings interest, from bagging government bonuses to keeping your savings local. Read on for our top tips and tricks.

1. Sort out your emergency savings fund

Before you think too much about finding the top interest rate, it's arguably more important to make sure you have enough of a savings buffer to cover any unexpected emergency outgoings - whether that's a broken boiler or being made redundant.

As a rule of thumb, you should aim to have enough to cover between three and six months of essential outgoings. That includes rent or mortgage payments, other household bills and essentials like food and transport.

You should keep this money in an instant-access account, as you won't know when you might need to use it.

Instant-access accounts offer lower rates of interest than fixed-term accounts that lock up your money - which might seem counterintuitive when you're trying to make your cash work harder.

However, if you make sure you find an account with a competitive rate, you'll likely be better off than if you were to keep your emergency savings in a fixed-term account and then have to access it early. Doing this usually means you'll lose out on a good chunk of your interest anyway - if not all of it.

• Find out more: how to find the best savings account

2. Maximise government bonuses

The government gives you a boost when you save into certain types of account:

Lifetime Isa

If you're aged between 18 and 39 you can open a lifetime Isa. You're able to save up to £4,000 a year into these accounts until you reach 50, and the government will pay a 25% bonus up to £1,000 each year.

You can only withdraw the money penalty-free if you use the cash to help buy your first home, or to spend in retirement after you reach the age of 60. The money will also be released if you have a terminal illness.

For any reason other than this, you'll be charged a 25% withdrawal penalty, which not only deducts the government bonus, but also 6.25% of your own money.

• Find out more:lifetime Isas - should you get one?

Help to Buy Isa

Help to Buy Isas are now closed to new customers - but if you already have an account and you're not paying into it, you're missing out on a 25% government bonus.

You can pay in up to £200 a month, and if the money is used towards buying your first home, the government bonus will be paid to your conveyancer or solicitor involved in the property purchase.

To get the maximum bonus of £3,000, you'll need to have saved £12,000; to qualify for the minimum bonus of £400 you'll need £1,600 in savings.

• Find out more:Help to Buy Isas explained

Help to Save

The Help to Save scheme can boost your savings if you're on a low income, You'll only be eligible for an account if:

• you receive working tax credit
• you're eligible to receive working tax credit or child tax credit
• you receive Universal Credit (or receive it jointly with your partner) and earned more than £617.73 from paid work in your most recent monthly assessment period.

You can save between £1 and £50 each month, and the government will add 50p for every £1 you save during the four years after you open the account. After four years, the account will be closed.

3. Make the most of local offers

Some regional banks and building societies are able to offer higher rates than bigger nationwide providers.

This can be because there aren't as many stakeholders in the business, and so money the bank makes can be more easily passed onto its customers.

For instance, Suffolk Building Society offers 1% AER on its Stepping Stone Isa for savers aged 16 to 20, but it's only available for those who are either existing members or live in postcode areas IP, NR, CO, CM, CB or PE.

Similarly, those who want to take advantage of Bath Building Society's instant-access cash Isa paying 0.5% AER must either live, work or study in Bath.

Providers' terms will vary, so be sure to check any location restrictions before you apply.

4. Check for loyalty rates

Some providers offer loyalty rates to their existing customers, as an incentive to stay with them.

For instance, Cynergy Bank offers existing customers between 0.12% to 0.21% more on its fixed-rate Isas than the rates it pays to new customers.

Elsewhere, those with First Direct or HSBC current accounts can exclusively access the providers' regular saver accounts. These pay 1% AER for 12 months when you pay in between £25 and £300 a month with First Direct, or between £25 and £250 with HSBC.

5. Try to save at least £1,000

Many accounts offering the most competitive interest rates require an initial deposit of at least £1,000 to open the account.

If you have less than £1,000 you currently have a choice of 591 fixed and variable-rate cash Isas and savings accounts. The top rate among these accounts is 1.6% AER for a five-year bond.

However, you'd be unable to save with the 483 accounts that require a minimum initial deposit of £1,000. These offer up to 2.08% AER for a five-year bond.

While it may sound counter-intuitive to save up in order to save, it can pay off if in the long run if you can get enough cash together to qualify for a competitive longer-term fixed account.

6. Give the fixed-term savings hack a go

In general, the longer you lock away your cash, the higher the interest rate you'll be rewarded with.

But if you don't fancy saying goodbye to all of your cash for five years, you could split up your pot in a way that means you can keep access to some money all of the time.

To do this, you'll need to split your cash into six 'pots', and deposit these into an instant-access account and five fixed-term accounts with varying terms.

Once each account matures, you can then put the cash into a five-year account, and you'll soon end up having a five-year account maturing each year.

If you started this process in 2022, this is how it could work in the years up to 2029.

7. Try your luck with a prize draw

While not the most reliable way to grow your savings, we recently wrote about a number of prize draws where your odds are pretty good of winning a prize that beats most rates of interest.

TSB's 'My Dream' prize draw is set to run until May 2022, and gives you the chance to win between £100 and £1,000 each month if you have a qualifying Spend and Save or Spend and Save Plus account.

Nationwide members also have a chance of landing a prize of £100 and £100,000 each month; odds of winning are usually around one in 1,750.

Elsewhere, Halifax and Bank of Scotland customers can win between £100 and £100,000, as long as they hold at least £5,000 of savings in a qualifying account.

And of course, there's premium bonds. More than 3m prizes are handed out each month, ranging from £25 to £1m. Each £1 premium bond has the same chance of winning, but you'll need to invest at least £10,000 to be certain of winning a prize every year, with average luck.

• Find out more:premium bonds - are they worth it?

8. Consider a high-interest current account

A savings account isn't your only option for earning interest. Current accounts can offer competitive returns, but on smaller balances.

Virgin Money pays 2.02% AER on balances up to £1,000 held in its Virgin Money M Plus account.

You can also earn 2% AER on balances up to £1,500 for the first 12 months after opening a Nationwide FlexDirect account. After the first 12 months is up, the interest rate will drop to 0.25% AER.

With a Chase account you can earn 5% AER on savings sent to its 'round-ups' pot. This is when you make a purchase, and the spare change to the nearest £1 is sent to a separate savings account.

So if you bought a coffee for £2.50, the purchase would be rounded up to £3, with the extra 50p going into the savings pot.

• Find out more:best high-interest current accounts

9. Use your Isa allowance as soon as possible

Everyone has a £20,000 Isa allowance each tax year; whatever's unused by midnight on 5 April is lost, and your allowance is renewed from 6 April - the first day of the new tax year.

You can either deposit the full £20,000 into a cash Isa, stocks and shares Isa or innovative finance Isa, or split it across several different types of Isa, including up to £4,000 into a lifetime Isa.

It's a good idea to save into your Isa as soon as the new tax year starts, so your money will be earning tax-free interest for a longer period of time.

• Find out more:how to find the best cash Isa

10. Opt for compound interest

The interest your savings accrue will either be 'paid away' or 'compound'.

Interest that's paid away is sent to a separate account. This option can be good for those who already have a healthy size of savings pot and want to receive interest each month or year as a regular income.

However, this means the savings held in the account won't grow.

Compound interest, on the other hand, is paid into your savings account, adding to your balance and therefore generating more interest for the following month or year - assuming you don't withdraw any money before the interest is calculated.

11. Check the terms and conditions

Before opening any new savings account or product, make sure you're fully aware of the terms first.

For instance, while some accounts are classified as being instant-access accounts, many have restrictions on the number of withdrawals you're allowed to make each year. Failing to realise this could mean you can't access your savings as much as you need to.

It's also common for accounts to include a 'bonus rate' that will drop after a certain amount of time, when it will likely become a less competitive option.

12. Watch out for tax implications

Bear in mind that savings interest can be taxable if it exceeds your personal savings allowance.

The allowance you get depends on the rate of income tax you pay. Basic-rate taxpayers can earn tax-free interest of up to £1,000 each tax year, while the allowance for higher-rate taxpayers is £500. However, if you're an additional-rate taxpayer you won't receive any savings allowance.

This is where Isas can come in handy; all interest earned in an Isa is tax-free, which can be particularly useful if you're an additional-rate taxpayer, or the amount of money you have saved is likely to generate more interest than what is covered by your personal savings allowance.

• Find out more:personal savings allowance explained

13. Be realistic about regular savings rates

Many regular savings accounts offer higher interest rates than other types of accounts.

For instance, NatWest's regular saver pays 3.04% AER - significantly more than any fixed-term account.

However, the way these accounts work mean the amount of interest you earn is less than you might expect.

For instance, even if you pay in the maximum £50 to the NatWest account each month, over the course of a year you'll end up with £609.88, which is an effective rate of 1.65%.

That being said, regular savings accounts are still a useful way to get into the savings habit, and a good option if you don't have a large lump sum to deposit.