How to make the most of your savings
Mon, 27 Jul 2009
Regular saving is a great habit to get into, whether you’re putting money away for a big purchase or simply want to give yourself a financial safety net. Choose your savings products wisely, and you’ll soon build up a nest egg.
Choosing your savings account
The Annual Equivalent Rate shows you the rate of interest earned within a year, irrespective of how often interest is added to your savings account. The higher the AER, the better your return.
Some savings accounts also track their AER against the Bank of England base rate, so you’re guaranteed a rate rise on your savings as the base rate rises. Other savings accounts will keep your AER consistent for a certain period of time.
The savings market is likely to improve over the next six months, according to Sainsbury’s Finance (Sainsbury’s Media Centre 05.09.09) which reports new movement in the savings market with increased competition. Banks may be more likely to raise their interest rates so keep your eye out for trusted banks that are willing to pass on any favourable rate rises from the Bank of England to customers.
If you’re happy to tie up your cash for 12 months or more, think about putting it in a fixed rate account. These guarantee you a specific rate of interest for a set period of time, as long as you don’t need to access your cash. They usually offer good interest rates, but you may need to deposit a minimum amount of cash.
Also, look out for the notice period. Does the account let you get at your money any time you want, or only after a period of 30, 60, 90 days or more? Generally the longer the notice period, the higher the interest rate – but you’ll be penalised if you withdraw money without giving enough notice, so think carefully if there’s a chance you may have to do this.
Investing for the long term
You may also want to consider putting money away for longer-term goals, like your children’s school or college fees. If you have spare cash to invest, and you can afford not to touch it for a few years, there are products linked to the stock market that you can invest your money in. Their value can go down as well as up, and there’s no guarantee you’ll get back the money you invested, though in the long term they can offer a favourable rate of return.
The right investment product for you will depend on lots of things – like how long you can leave your money for, and how big a risk you want to take. More guidance on first-time investing, plus the latest news and share prices, is available from the London Stock Exchange’s Investor Centre. Or if you’d like professional advice, contact My Local Adviser to find an independent financial adviser near you.
Secure your savings
Always make sure your money is placed with a bank that is a member of the Financial Services Compensation Scheme (FSCS). They are an independent body, who pay compensation if a company is unable or unlikely to pay claims against it. The FSCS protects deposits, insurance policies, insurance broking, investment business and home finance advice and arranging. And the first £50,000 saved per person, per financial institution is protected. But there are limits to the protection provided, so make sure you’re fully aware of them. The most important being that protection is per institution not per account. So, if two banks merge, although you may have accounts with different banks, they might actually all be part of one financial institution. See the table featured in this BBC article to find out which bank is part of which financial institution:
Stay on top of accounts, statements and direct debits
Keep track of your account activity by checking your statement regularly. “Nearly 20% of us fail to check our statements regularly” according to Sainsbury’s Fresh Ideas magazine (Sept ’08). And with credit and debit card fraud on the increase, it’s more important than ever to scrutinise statements and bills. Look at them as soon as they arrive so you can pick up and report fraudulent transactions straight away.
When you’re checking your statements, make sure you’re not wasting money on old direct debits or standing orders you’ve forgotten to cancel. To help make it clearer, you could ask your bank to print off a list of them all. Then you can identify and cancel the ones you no longer need.
Do the same with online accounts: log in and go through every payment thoroughly. And when you’re using an online banking service, be aware of your personal security. There are a number of things you can do to stay safe online, such as keeping your PC secure by using anti-virus software and installing a firewall, as well as looking out for email scams and keeping your password and PINs safe. For more details about online banking security see our Top Tips for staying secure online [link to top tips section].
Lastly, always remember to close old accounts, or cancel suppliers that have been replaced. When you do, make sure all outstanding balances are paid and that it’s confirmed in writing. That way, you will avoid any unknown fees later on. Also, destroy all cards relating to the accounts. Be clear about who you’re currently banking with and making payments to – it will make your finances easier to manage.
Play your cards right
Certain debit cards let you put money into a savings account each time you swipe. This works the same way as using cashback, except the money goes into a savings account, rather than your pocket. Such cards may be tied to loyalty schemes that let you accrue points every time you spend.
