The average interest on savings accounts in the UK has now gone below 1%, with some giving savers far less than that. When one considers inflation, this means that any cash in ordinary savings accounts is now decreasing in the real sense! So where should savers keep money in the current economic climate? Here is the advice of some experts.
Pay off as Much Debt as Possible
No matter how low the interest rate on any current debts people may have, it is better to pay it off and reduce the money in savings accounts. This is particularly true for those who have credit card and similar debts at a high rate of interest, but applies equally in the present climate to things such as mortgage debts. Experts advise keeping a small emergency savings fund, but suggest that this should not be more than three months salary; any more should be used to pay off any type of debt.
Put Extra Savings into a Cash ISA
Everyone is allowed to put £3600 per year into a cash ISA (Individual Savings Account). The interest on these is tax-free, and some are still offering a reasonable rate of interest. This should be the first place for any spare money. Many people only put money into cash ISAs at the end of the tax year, but one can do it at any time. It would be sensible to do this now, and if possible find one where the rate is fixed, before interest rates drop any lower.
Regular Savings Accounts
Some banks and buildings societies still have good rates for Regular Savings Accounts, where the saver puts in a set sum each month. The maximum is usually relatively small, around £500 at most. However the rates are usually fixed for the year, so this is worth doing now for those who have any spare cash. At the present time Barclays Monthly Saver, Close Brothers Premium gold Account, and Abbey Monthly Saver, were all offering rates over 5%.
Those with a significant amount of money in Premium Bonds usually have small wins at regular intervals, and of course there is always the possibility of winning a large amount. So this could be a sensible place to save at present, even for those who do not usually do anything approaching gambling. And since Premium Bonds are government owned, the original amount of money is always safe.
Perhaps the most important thing to do is keep an eye on savings rates and be prepared to move accounts if a better deal comes along. In the present economic situation this could make the difference between making a small gain at the end of the year, and losing money in real terms.