If you're saving money, make sure you don’t accept a dismal deal. Here we look at alternative homes for your cash.
Some of the best returns on credit balances come from current accounts. While you can’t slot away hefty sums, if you have a small savings pot, they are worth considering.
Check moneyfacts.co.uk to see how much credit interest your bank pays. Consider switching if this is minimal, or non-existent. Some current account providers pay a hefty 3%-5%.
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Fixed-rate accounts offer some of the best returns on the market. That is, if you’re prepared to lock away your cash for a specific timeframe.
The longer the term, the higher the rate. However, beware of placing cash you may need over the short-term in these accounts. You may face steep penalties for withdrawals.
Savers could get a better deal by shunning the banks. Peer-to-peer sites, which enable individuals to lend to each other, are a popular alternative option. Examples include Zopa and Ratesetter.
You can earn more than 5% if you lock up savings over several years.
However, firms aren’t covered by the Financial Services Compensation Scheme, protecting the first £75,000 of saver’s cash.
Instead, firms have their own style of ‘safety net’ to guard against losses. If you pick this option, make sure you understand the detail.
How does peer-to-peer lending work?
Saving regular sums into an account on a monthly basis can pay. Some banks offer regular savings accounts with interest rates several times higher than standard accounts. Rates can be as high as 6%.
But you’ll have to stick to the rules for the best deals. These usually include having a current account with the bank, and there tend to be caps on the sum you save each month.
Check out comparison sites such as Moneynet.co.uk and Moneyfacts.co.uk to compare rates. There is a plethora of accounts on offer, and this can make choosing the right one for you simpler. Plus you can ensure you’ll benefit from the best rates around.
Shelter savings from tax
According to government estimates, around 95% of people no longer pay tax on savings. This follows the introduction of the personal savings allowance (PSA) in April 2016.
This means that now the only people who now pay tax on savings are basic-rate taxpayers earning more than £1,000 interest a year, and higher-rate taxpayers earning more than £500.
If you earn more interest than your allowance accounts for, from April 2017 you can save up to £20,000 a year in an ISA, which will shelter your pennies from tax.
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