In today’s low interest-rate environment, growing your savings tree has indeed become difficult. It’s one thing to be able to save and another thing to make savings work for you. Savers are always on the lookout for new tips and tricks to build up a big pot of money for a rainy day. In the UK, returns on pounds don’t come so easily. Yet, there are some ways you can ensure your money is working as hard as possible. Today, we bring you some essential saving tips which are sure to work if put into practice.
Pay off your debts:
Although this article is not on debt, think about it: if you’re paying a higher interest rate on debt and getting a lower interest rate on savings, then you’re effectively losing money. You’re actually shelling out more pounds than you’re earning. Thus, it makes sense to clear any debts you may have as soon as possible. You can see for yourself how your money tree will grow when done away with interest payments. Just remember to put aside enough money for a rainy day. If you have accumulated outstanding debt on your credit card, transfer it to a card with a lower rate and then pay it off tension-free over the next few months.
Use ISA Allowance:
Tax-free ISAs have become fairly unattractive, thanks to the introduction of the personal savings allowance in 2016. This allowance is applicable for those banks which aren’t tax-free like non-cash ISAs. Basic rate taxpayers are exempt upto £1,000 and higher rate taxpayers upto £500 savings interest earned. However, it’s still worth using the £20,000 ISA allowance. Even if you can’t fully claim this personal allowance due to low savings, an increase in interest rates usually makes up for it.
Go for fixed rate accounts giving higher interest:
It’s affordable for banks to pay a higher interest rate on fixed rate accounts as money locks in for a specific period of time. The longer you keep your money, the more interest you earn. But, take care not to lock in your pounds at a particular rate for too long as you’ll be losing if banks raise the interest.
Switch to a better current account:
Some current accounts also pay a certain rate of interest on it. If you are a saver and tend to keep a high balance in your current account, consider the interest rate you’re getting paid. Switch to a better account to earn more as interest. That said, current accounts always prove themselves a better alternative to easy access accounts. That’s because banks will pay you to keep your money, at the same time you can easily withdraw whenever you want.
Teach your kids how to save:
It’s important that kids learn about saving money and become savers from a young age. You should open a kids bank account for them that will teach them how to manage their money. They should also be encouraged to save a part of their pocket money every month. Competitive interest rates can be got on children’s bank accounts. For example, some banks pay a 4.50% fixed AER for depositing between £10 and £100 a month.
Watch out for when the bonus period ends:
Quite a few savings accounts offer short term bonuses for about 12 months. Therefore, you should keep yourself up-to-date and review your savings periodically. If the account ceases to remain competitive, move your money as soon as possible.
Utilise savings to offset your mortgage:
One of the different types of mortgages, offset mortgage allows borrowers to offset their savings against what they owe. Thus, you won’t get savings interest but you pay zero interest on an equal amount of your outstanding mortgage. For example, if the mortgage is £300,000 and £100,000 in savings, interest needs to be paid only on the difference between the two, i.e. on £200,000. Opting for this mortgage type enables homeowners to greatly reduce their mortgage term.