Whilst interest rates have finally increased after 10 years of decreasing to historic lows, generating a return on your savings still requires a bit of savvy planning. In this post, we will give you some tips on how to maximise your savings, helping shore you up for if you find yourself in a bit of a pickle.
Before starting saving, it's worth getting rid of any existing debt, such as credit card loans. Even with rises in interest rates, the interest accumulated on savings is still significantly lower than the interest on most debt. If you saved £2000 in a high-interest account, earning £40 on a 2% return, the equivalent credit card debt for the period - typically around 17.5% - would clock in at £350, leaving you over £300 worse off than if you had simply paid of the debt at the beginning of the year.
There are exceptions, however. Research indicates that a majority of students who took out student loans after 2012 would be worse-off paying off their student loans early, despite the current interest rate on the loans being an eye-watering 6.1%. This is because student loans are written off after 30 years.
Student loans also do not factor into your credit score, so unless you are likely to be earning over £50,000 per year, these loans may be the exception!
If you are looking to buy a property any time in the future, a Help to Buy ISA is a serious consideration for any saver. A Help to Buy ISA can be opened with an initial deposit of £1200, and a maximum of £200 can be added each money, up to a maximum value of £12,000. It takes 4.5 years to reach the £12,000. When you are ready to buy, the government will top up your savings with an additional 25% bonus, meaning an effective £50 interest on each £200 monthly deposit, plus interest - that's certainly nothing to be sniffed at.
It's worth noting that money in Help to Buy ISA accounts should not be touched if you want to maximise the savings. If you remove £400 one month, you can't simply deposit £600 the next, nor will you be able to withdraw £200 within a month and put it back into your account within the same month. As such, this option is fantastic, but only for those who can afford to set aside money. Similarly, the 25% bonus can only be claimed when purchasing a property, so if you open one with no intention to buy, you will not get the 25% bonus.
A Help to Buy ISA is available to anyone aged 16 or above, looking to purchase their first property valued under £250,000 (£450,000 in London) with a mortgage.
Bizarrely, many current accounts are offering better interest rates than many savings accounts at the moment, so rather than simply check out what savings account a bank has to offer, it's worth asking about their other account options too.
Whilst common saver accounts are not pulling in the crowds, regular savers accounts can still offer a good value. As the name implies, these savings accounts require regular deposits, usually with a monthly maximum. Other stipulations may apply, though unlike ISA savings accounts, if you find yourself able to pay more than the maximum allowed by a particular regular saver, you are free to open other regular savings accounts with other banks.
If there is more than one of you saving, you may want to think about setting up an account in the name of whoever earns the least - or at least pays the least tax. For married couples, there are a number of ways that money can be 'gifted' from one spouse to the other.
The 2013 Marriage Tax Allowance also allows a couple to transfer £1,100 of their tax burden to their partner, if their partner earns less than £11,000 per year, knocking £212 off the tax bill. Those in civil partnerships can also benefit from this allowance. In the 2015/16 tax year, almost one million young couples claimed £210 million in tax allowances - that's a lot of saving!
Whilst loyalty was once reward by banks, now new custom is. Taking advantage of these introductory offers is a great way to maximise your savings, and often improve your credit rating too.
Many credit card providers offer extended 'interest-free' usage, allowing you to make payments for up to 18 months without paying interest. In these instances, it can make sense to pay for everything on a credit card until you reach the maximum, and put all of your earnings each month into a savings account. This means you earn interest on the maximum amount of money, before paying off your credit debt in a lump sum before the interest-free period expires, closing the account and opening a new one elsewhere.
Maxing out your credit card and paying off the debt in a lump sum also helps improve your credit score by indicating that you are not worried to increase your debt, and you are able to pay off large debts.
With interest rates finally setting to rise, and the economy in constant flux, advice can quickly go from good to bad. Always make sure you keep your wits about you when it comes to managing your hard-earned dosh.
But remember, the government guarantee all savings up to £85,000 per person in all UK-regulated banks and building societies. So however you want to save, your money should be safe.