Let’s assume you have a portfolio of stocks and shares, whether that be through personal investments or pensions.
However, given the direction of base rates (and hence interest rates), along with predictions they will continue increasing to address, or at least contain, inflation, how and where should individuals hold residual savings to maximise the returns available?
We are talking short term/rainy day cash, a potential “silver lining” which can be easily overlooked.
Canny folk were moving between saving accounts when the difference was a modest 0.10 per cent to 0.20 per cent a year, but current and potential rates are definitely more compelling … albeit in addition, and not as an alternative, to stock market-linked medium and longer term holdings.
Which Money notes: “After a decade in the doldrums, the savings market is finally bouncing back.
“Unfortunately, savers’ old enemy, inflation, has also made a dramatic comeback. It’s now surpassed ten per cent, and there’s no hope of finding a savings account that can keep up. This shouldn’t be seen as a cue to admit defeat, though. Some providers are still offering accounts paying next to nothing. This is particularly true of the high street giants. It’s now all the more important to make sure you’re getting the best possible rate.”
One route is to play the current account market. Several pay decent interest – earn up to 5.12 per cent on smaller sums. Or take advantage of the cash switching bonuses offered by some banks.
What then of savings accounts?
Moneysavingexpert.com points to rates of up to 2.75 per cent for easy access and 5.05 per cent fixed.
Other deals it cites include up to 5.25 per cent interest if you can save on a regular monthly basis; 50 per cent bonuses if you’re on a low income; and up to 3.5 per cent for children.
Echoing Which Money, it comments: “Savings rates have been steadily rising, with the highest rates we’ve seen for more than a decade. Yet, with inflation roaring, in real terms money in savings is shrinking. To mitigate the impact, you need as high a rate as possible.”
Returns generally tend to be better if you’re happy to open and manage your savings accounts online.
Remember too that there is always a trade-off between instant-access and fixed-rate deals – flexibility versus locking your money away for a period. Rates reflect this.
Which Money is sanguine about National Savings & Investments.
It states: “NS&I holds a special place in the heart of UK savers. Home of the perennially popular premium bonds. But its rates aren’t quite as noteworthy. In fact, it deliberately avoids offering above-average rates, instead positioning itself in the third quarter of all savings tables.”
There are two sides to the coin on ISAs too.
“ISAs used to be a no-brainer for savers looking to maximise their returns, as their tax-free status means you keep every penny of interest you earn,” added Which Money. “But now you’re unlikely to have to pay tax on any savings interest – even outside an ISA. This is all thanks to the personal savings allowance, introduced in 2016. It means that if you’re a basic-rate taxpayer you can earn up to £1,000 in interest a year tax-free, while higher-rate taxpayers can earn £500. If you’re likely to exceed this allowance, an ISA still makes a lot of sense. Otherwise, you should simply opt for the account that pays the best rate. And generally speaking, this probably won’t be an ISA.”
A lot to think about – but it pays to be persistent by always keeping an eye out for the top offers.