MILLIONS of homeowners have seen their mortgage repayments increase since the Bank of England started hiking interest rates last year – but savers aren’t getting the same treatment.
The base rate has risen five times over the last few months, from a low of 0.1% to 1.25% today.
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But the increases have affected savers and mortgage holders in different ways.
While banks typically pass on any rate hikes to mortgage holders immediately – pushing up their monthly repayments – many are moving a lot slower when it comes to bumping up interest rates on savings accounts.
No savings accounts beat inflation, which is currently sitting at a 40-year high of 9.4%.
This means the value of any cash in the bank is being eroded away each year as it fails to grow at the same rate that prices are rising.
That makes it all the more important to find the best savings rate you possibly can, to help make your money stretch as far as possible.
Rachel Springhall, finance expert at Moneyfacts.co.uk, has revealed to The Sun her top tips on how to scout the market for the best savings rates available.
Speak to your bank
If your current bank account is offering decent saving rates, be sure to check if you can take advantage of it.
Some banks now require you to apply to add a better savings rate, or it could be a case of switching to a different account with the same bank to qualify.
For example, Virgin Money customers could account consider upgrading to an M Plus Account to get access to its linked M Plus Saver – it pays 1.71% on balances up to £25,000.
If you’ve got an online-only Chase current account – you can open multiple linked savings accounts paying 1.5% interest on savings up to £250,000 and there’s no withdrawal limit.
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Rachel said: “It’s wise to check what your current account provider has on offer as a benchmark – you can then compare those rates to the wider market.”
But if your own bank’s offering is poor, consider switching to take advantage of a better linked saver.
You could even bag a switching bonus this way too.
For example, if you switch from another bank and sign up for a Virgin Money M Plus saver you’ll get 20,000 Virgin Red points to spend on day trips, gifts and flights.
Check comparison websites
With your current rates in mind, don’t waste time looking at individual banking sites to compare others – it’ll take you eternity.
Research websites like MoneyFacts.co.uk and price comparison websites such as Compare the Market, Go Compare and MoneySupermarket will help save you time and show you the best rates available.
These sites let you tailor your searches to an account type that suits you.
Rachel said: “It’s a quick way to compare the top rates.
“Savers can even search by how much they are looking to put aside and how long they are prepared to lock it away.”
Check the account type
There are five main types of savings accounts, and understanding the differences can help you narrow down the options.
- Easy-access savings accounts – usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.
- Regular savings accounts – generate decent returns but only on the basis that you pay in a set amount each month.
- Notice accounts – offer slightly higher rates than easy-access accounts but you’ll need to give advance notice to your bank (up to 95 days) before you can make a withdrawal or you’ll forfeit the interest.
- Fixed rate savers – these offer some of the highest interest rates. However, if interest rates increase during your term you can’t move your money and switch to a better account.
- Individual savings accounts (ISAs) – these can pay high interest but come with high withdrawal fees and are unlikely to be beneficial if you’ve less that £65,000 in saving. However, Lifetime Isas are great for anyone aged 18-39 hoping to buy a house or save for retirement.
Rachel said: “Many people prefer easy-access accounts because they’re the most flexible.
“They provide peace of mind, as savers can access their cash quickly – but the downside is, the rates are usually lower.”
If you’re after an easy-access account, online versions tend to offer better rates.
For example Shawbrook pays 1.52% on balances of £1,000 plus.
For regular savers, Yorkshire Building Society pays 5% a year for those who save up to £500 a month.
And if you want to lock your cash away for longer, the top fixed rate accounts pay up to 3.2% a year.
Ditch the ISA
With today’s personal savings allowance a saver would only be taxed on their savings if they had £65,000 or more in the bank.
Founder of MoneySavingExpert.com, Martin Lewis actually encourages most to sign up for a Lifetime Isa (Lisa) to get thousands of pounds in free cash if you’re a saver.
You could bag up to £32,000 for free from the government if you max out this savings account over the long-term.
A Lisa is savings account for anyone aged 18-49 – you can put in up to £4,000 a year until you’re 50, and the government adds an additional 25% bonus on top.
But you can only use the money you save to either buy your first home or at retirement, or you’ll forfeit the bonus.
Elsewhere, we’ve looked at the banks charging up to four times as much in transfer fees.
And we spoke to one super saver who used money challenges to stash away £6,500.
This post first appeared on thesun.co.uk
