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23 Jun 2019

7 tricks to boost your savings in 2019

From fixed-term savings 'hacks' to current account 'games'

UK savers are increasingly using multiple bank accounts to take advantage of the best rates, according to new analysis - but that isn't the only way to get the most out of your money.

Savings platform Moneyhub found that its average user now has three accounts with three banks, compared to two accounts in 2016.

Opening multiple savings accounts is one approach to ensuring you earn the highest return on your cash.

We explore another seven savvy savings tips, tricks, and hacks you should try if you're serious about saving.

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1. Play the current account game

Though most of us hold our nest eggs in savings accounts, there are a number of high-interest current accounts that can offer impressive returns. However, many require you to meet minimum monthly deposits, so you may need to move your money around to make the most of them.

One option works like this:

  1. Find the current accounts with the best interest rates - see our page on the best high-interest bank accounts for help.
  2. See how much cash you need to deposit each month to get the interest- a TSB Classic Plus Account, for example, requires a minimum £500 deposit each month to get 5% AER interest on balances up to £1,500.
  3. Work out what the maximum amount you can earn interest on would be- there's generally a cap on how much interest the account will pay you.
  4. Open more than one high-interest current account and transfer money between them - making sure you hit the minimum monthly deposit for each account.

For a more specific example, let's say you have a Nationwide FlexDirect current account. You need to pay £1,000 into it per month to earn 5% AER interest.

However, you'll only earn this much on balances up to £2,500. If you deposit this amount, then set up a direct debit to transfer £1,000 in, and then back into your everyday account, you'll be earning the maximum amount of interest.

Even better, you could set up a direct debit into a TSB Classic Account to meet the £500 minimum deposit, and earn 5% AER on up to £1,500.

It might sound complicated, but if you set up a few standing orders, you can make all this happen automatically.

Our high-interest bank accounts guide has a more detailed breakdown of how this works.

2. Try this fixed-term savings hack

To get the highest interest rates, you often need to lock your money away for up to five years in a fixed-term savings account.

By opening a number of fixed-term accounts of different lengths, you can get the benefits of long-term rates while always having some money available.

To do this, find multiple top-rate fixed-term bonds and savings accounts, all set to finish at different times, and pay into them all at once.

For this example, let's say you open an easy access account, and one-year, two-year, three-year, four-year and five-year fixed-term accounts.

When your first one-year bond matures, you can reinvest that money in a new five-year account. The year after that, your two-year account will mature. Once again, you can reinvest that money in another new five-year account.

Eventually, all your money will be in five-year fixed-term accounts, with one maturing each year. You'll get the higher interest rates that usually come with longer fixed terms, but some of your money will become available each year.

The diagram below illustrates how this works over a seven-year period.

3. Diversify long-term and instant-access accounts

Even if you don't want to be moving money between multiple accounts, it's still a good idea to diversify. Splitting your money between a fixed-term bond and an instant-access account will give you returns while ensuring you have cash in an emergency.

Many top-rate instant-access accounts offer a bonus rate, which drops after the first year. So it may still be worth shifting to a better-paying account at that point.

See our guide on how to find the best savings account for help finding the best option for your circumstances.

4. Make the most of a portfolio Isa

If you're earning a substantial amount of interest, you may benefit from the tax-free wrapper of an Isa.

Though you can only pay into one cash Isa per tax year, you can still diversify your cash holdings with a portfolio Isa. These products let you have multiple 'cash Isa accounts' with different fixed terms during the same tax year. All this, and it still technically counts as one Isa.

The Post Office's Online Isa, for example, lets you pay into its Easy Access Issue 12 account which pays 1.4% AER, as well as its Fixed Rate Issue 12 accounts with 1.5% AER at 1 year and 1.6% AER at 2 years.

You can pay into these accounts using a similar method to the one described above so that each matures at different times. Just remember that the combined total of what you pay into these accounts cannot exceed the Isa limit of £20,000 a year.

5. Beware of regular savings rates

With a regular savings account, you have to deposit money each month - so they're great for new savers building up discipline. And the headline rates are often as high as 5% AER.

But typically, these accounts have a cap on the amount you can deposit each month. This means the rates might not be as good as they seem.

For example, say you saved £3,600 over a year in regular monthly installments of £300 into a First Direct Regular Saver, which pays 5% AER.

By the end of the year, you'll earn £97.50 interest in total - closer to 2.75% of the annual total - because only a small amount of your cash would have been in the account for the full 12-months.

This means if you have a large sum to put away all at once, there's little point in getting a regular savings account.

6. Max out your Isa allowance early

Each year you can pay up to £20,000 into an Isa, tax-free. This allowance lasts for the tax year, which starts and begins in April.

If you're able to pay £20,000 into an Isa in one year, it's best to do it as early in the year as you can. This way your money will be earning interest over a longer period.

7. Opt for compound interest

Many of us assume that any interest you earn on your savings will be paid into the same account, so you can earn next month's interest on the combined total. This is called compound interest, and it can escalate your savings dramatically - but it's not always the way things work.

Many savings products pay interest into another, separate account. In these cases, you won't benefit from interest on the returns you've previously earned.

Check the details of any savings account you're considering to see whether it pays compound interest. If your interest is paid away, it may be worth checking whether you can withdraw these returns and re-invest them in an interest-earning account.

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