Are you checking your savings enough?

When was the last time you checked in on your savings? After all, once you’ve set money aside for the future, it’s all too easy to forget about it, right? 

But, if you want to get the best return on your cash, it’s important to keep an eye on it. Even if you shopped around at the time, there’s no guarantee it’s still the best deal. 

Alex Edmans, Product Director at Saga Money, says: “The over 50s are the largest group of savers in the UK with the highest share of the - roughly - £1.5tn UK savings market.  

“However, Bank of England analysis estimates that the majority of this is earning less than 2%, when there are currently rates of up to 5% available. For someone with an account of £10,000 this would equate to them missing out on £300 a year of interest.” 

Where should you hold your savings? 

Before you get too bogged down by savings rates, it makes sense to first review where you’re actually saving your cash. 

Savers have a lot of options when it comes to deciding where to put their money, but Sarah Coles, Head of Personal Finance at Hargreaves Lansdown, notes that it’s all too easy to take the most convenient option. 

“A common savings mistake is to keep money in a current account. Our research shows that almost one in three people do this.  

“Not only is there a good chance you’re getting little or no interest on this money, but it’s also far too easy to dip into it without noticing when it’s sitting alongside cash for everyday expenses.  

“If you’re not careful, you can spend your way through it without having anything to show.” 

But while easy access accounts almost always have a better return than cash in a current account, Coles says older people can be tempted to hold too much money in these too.  

“When you’re on a fixed income, it can be comforting to know you have cash handy for whatever life throws at you.  

“However, given how [interest] rates are falling – and how they’re likely to fall – this could be an expensive mistake, which could see the spending power of your savings gradually eroded by inflation. 

“An easy access account is the right home for your emergency savings, which - after retirement - should be enough to cover one to three years’ worth of essential spending.” 

If you have built, or are building, an emergency savings pot, you might not need to have the whole amount in an easy access account – putting in there only what you need but have a plan if you need to get your hands on further savings. 

“For any other cash you need over the next five years, it makes sense to consider tying it up for the most suitable fixed periods,” adds Coles. 

Fixed-rate savings accounts typically pay higher rates than easy access – although that’s not the case in the current market - and you can be confident that your rate won’t change.  

However, Anna Bowes, co-founder of Savings Champion, stresses you must be prepared to tie up your money for the required period (typically one to five years). 

“Fixed-term accounts can offer certainty as the rates will not change for the term (a great idea in a falling market), but there may be no access, or access with a hefty penalty, if you decide to take this route.” 

She adds: “What is odd at the moment is that the best longer-term bonds are offering lower rates than the shorter-term bonds. This is unusual but it illustrates current market conditions.  

“As interest rates are expected to fall further, providers don’t want to be paying more than they need to, for longer. 

“But this also means that you might be sensible in locking away some of your cash...to have access to today’s rates for a few extra years.” 

Think about tax 

Once you’ve decided whether you need easy access or can afford to tie your money up with a fix, it’s worth thinking about tax, and consider whether an ISA could be useful. 

Basic- and higher-rate taxpayers have a Personal Savings Allowance (PSA), which offers a certain amount of tax-free interest on standard savings accounts (£1,000 for basic-rate and £500 for higher-rate).  

• Everything you need to know about the Personal Savings Allowance 

However, it is possible to shelter your savings from tax by paying into a cash ISA. Each year you can pay as much as £20,000 into ISA and all your returns will be free of tax. 

Bowes says: “Whilst top standard savings accounts look like they pay higher interest rates than the equivalent ISAs, that depends on your tax situation.  

“If you have already fully utilised your PSA, then the tax-free return from an ISA is likely to be more than the after-tax return on a bond. 

“For example, the top one-year bond currently available is paying 4.95% - but if you deduct basic rate tax, the net rate is 3.96% - far lower than tax free interest from the top cash ISA equivalents.” 

Review, review, review 

Choosing the right savings account is the first step. But to ensure you carry on making the most of your cash, you’ll need to review it regularly.  

As Bowes says: “Many people believe that their savings provider will do the best for them, but the truth is that loyalty rarely pays, especially if you have your savings with your current account provider, which many do. 

“The fact is that you need to be active in order to earn better interest.” 

Independent savings expert, Andrew Hagger, suggests you check your savings balances, interest rates and amount of interest earned three or four times a year.  

“This will help you identify at an early stage if you are likely to exceed your annual Personal Savings Allowance and will give you time to switch some cash into an ISA to help mitigate having to pay any tax on your savings interest earned.” 

When you’re conducting your review, always be mindful of the Financial Services Compensation Scheme (FSCS) limit too.  

It will currently protect up to £85,000 of your money if your bank fails, so if you have more than this saved in one place, it’s a good idea to spread your money across different savings institutions with the same protection. 

And, if at any point you pay money into a fixed-rate account or a savings account with an introductory rate, be sure to make a note of when it runs out. 

Hagger adds: “Ideally, you'd have your savings accounts information available online via apps or online banking as this makes the whole process of reviewing and switching money much quicker and straightforward. 

“The alternative isn't great as finding a local branch to talk to somebody is becoming increasingly difficult, so signing up for telephone banking might be the next best option to help you keep tabs on your savings rates and balances.” 

If, on the other hand, you’re confident managing your money online, Edmans says it might be worth considering a savings platform.  

“By completing only one application you’ll gain access to a wide range of banks and accounts. This works especially well for fixed-rate savings, as it’s easy to manage your funds on maturity and access a range of competitive rates from different banks.” 

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