Tips to boost your savings
Rather than let it sit idly by, you save your money so that it continues to work for you. But some savings work harder than others, so it might be useful to consider some tips and suggestions about how and where to save for that maximum boost:
Spoilt for choice
- just as you want to make the most of your savings, so deposit takers are competing for your custom – the result is a plethora of savings accounts offering a multitude of rates and conditions;
- choosing between them may prove a challenge, but – as the old saying goes – you do not need to put all of your eggs in one basket;
- you might want to spread your savings around several different accounts – even when it comes to current bank accounts, where Which? magazine has found that more people in 2019 are opening multiple accounts in search of the best mix of options;
- it is a sensible habit to save regularly – by setting up a monthly transfer into your savings account, for example, and making sure that any windfalls are also sent that way, as the charity Age UK suggests;
- indeed, some interest-bearing current accounts depend on your depositing a minimum amount each month in order to qualify for the best rates of interest;
Fixed-term or instant access?
- another choice you need to make is whether you can afford to lock your money away for a longer period – of, say, five years – to secure a higher rate of interest or whether you want the safety of instant access in case of emergencies;
- deciding how much to keep in that instant access account, of course, depends on your circumstances, but a useful rule of thumb might be to aim for three months of your regular income kept in the quick access rainy day fund;
- once again, a solution might be to spread your savings between both types of account and strike a balance between fixed-term and instant access accounts;
- you might be even more sophisticated and open different one, two, three, and four-year fixed-term accounts, transferring the money when each of those matures into a five-year fixed-term in successive years;
- you derive an income from your savings, so might expect to pay tax on that income – and, while that is true, there are also tax rules and allowances that help you boost your savings;
- since 2016, for instance, income from your savings is paid without any tax being deducted – if you pay tax at the basic rate of 20%, you enjoy an initial allowance of £1,000 on the interest earned and pay income tax on the remainder, if you are paying income tax at the higher rate of 40%, the allowance is £500 a year, but if you pay at 45%, there is no such personal savings allowance;
- minimise your tax liabilities by taking advantage of other tax-free ways of saving – such as cash ISAs and Premium Bonds, for example – which do not detract from your £1,000 or £500 personal savings allowance.
So, it is not just a question of putting the money you can afford into interest-bearing savings accounts, but also paying careful attention to how and where you save.
The data used in this article is correct at the time of writing.