How to Secure Your Savings
Posted: October 5, 2008 Filed under: Savings Leave a comment »The continuing turmoil in the banking sector and concerns about the stability of banks such as Halifax Bank of Scotland and Bradford & Bingley, have led to increased worries about the security of savings deposits.
So where can savers put their hard-earned cash with the full confidence that it will be protected?
The risks to savings deposits
So far no saver in the UK has lost money as a result of the credit crunch, but understandably many are becoming increasingly nervous.
For ordinary mainstream savers, there is in reality little reason to be concerned. The average savings account in the UK holds around £9,000. These accounts are fully protected under the Financial Services Compensation Scheme (FSCS). The FSCS guarantees that if a bank or other financial institution collapses, £50,000 per saver held with any one savings provider is guaranteed (this has recently been increased from £35,000). If a joint savings account is involved, it is protected up to £100,000.
With about 40% of single accounts exceeding £50,000, however, savings can still be at risk. The key here is to distribute money between different providers. It is critical to check, however, that the savings accounts belong to independent providers. Some banks, for example, offer savings accounts under different brand names, but share the same registration with the Financial Services Authority. This means that savers could find themselves in the unfortunate position where they are covered for only one of multiple accounts, if the provider goes bust.
Which are the best savings accounts?
With savings rates at their highest level for years, it is possible to have multiple savings accounts without sacrificing returns. Individual savings accounts (Isas) should be the first choice for savings, as they are tax-free investments. Up to £3,600 can be deposited into a cash Isa every tax year.
If savings do not need to be accessed at short notice, fixed rate bonds are worth considering as they offer the highest rates of interest.
If access to savings is required then internet savings accounts are a popular type of savings account as they allow money to be moved in and out at any time. Many of these accounts are paying gross interest at well in excess of 6.0%.
What if you want all your savings in one place?
While it is possible to protect large savings deposits by spreading money between different providers, there are two which offer unlimited guaranteed protection. Northern Rock and National Savings & Investments (NS&I) are both Government-backed giving savers total protection. However, with the exception of NS&I’s index-linked savings certificates, the rates available from either institution are not the best, so this protection does come at a cost.
Inflation proof your cash
Posted: August 14, 2008 Filed under: Savings Leave a comment »The Retail Price Index is rising. A key way to stay ahead of inflation is by maximizing the return on your cash.
Here are a few tips:
Tip 1: Change your current account
Make sure you are earning the best rate of interest on the cash kept in your current account. There is a wide variation in rates and it is well worth shopping around.
Tip 2: Ensure savings are getting the highest rate
It is well worth checking to see if your current savings rate is still competitive. If you need regular access to your savings, however you will have to be willing to accept a lower rate of interest – there are, however, some very good deals out there, so it is worth shopping around.
Tip 3: Take advantage of cash Isas
Cash individual savings accounts (Isa) work like any other standard deposit account, except that the interest is tax-free. It is possible to invest up to £3,600 a year in a cash Isa. If you have money in an Isa that is no longer paying a competitive rate of interest, you can transfer it to another account without losing the tax break.
Tip 4: Offset savings
More than likely, you are paying a higher rate of interest on your mortgage than you are getting on your savings. This means that an offset mortgage may be worth considering, particularly if you are a higher-rate taxpayer.
Offset mortgages work by setting savings against borrowing. In effect, you do not get paid interest on your savings, but in return monthly interest payments on your mortgage loan are reduced.
For example, if you had a £100,000 mortgage and £30,000 in savings, you would only pay interest on £70,000 of the loan. Your monthly payments, however, would be based on the full £100,000 loan meaning you overpay on your mortgage each month, and clear your debt more quickly. And because no interest is earned on savings, there is no income tax to pay. This is why offsetting can be particularly beneficial for those in the top tax band.
It should be noted, however, that interest rates on offset mortgages are often slightly higher than those on standard home loans, so offsetting may not be the best option – it will depend on the amount you have in savings.
The main offset providers include Newcastle and Yorkshire building societies, Woolwich, Intelligent Finance, and First Direct.
Tip 5: Purchase NS&I index-linked savings certificates
You are guaranteed to stay ahead of rises in inflation by investing in index-linked savings certificates available from National Savings & Investments (NS&I). Three and five-year plans are available that are set at 1% above the retail price index (RPI), with minimum purchases of £100 and maximum purchases of £15,000 per issue.
The three-year certificate, 18th Issue, is paying 1 percentage point above RPI, currently 5.6%. This equates to a savings rate of 7% for a basic-rate taxpayer, and 9.3% for a taxpayer in the top band.
Tip 6: Review your interest
If you have a credit card, or a loan, and the interest that you are being charged is higher than what you are earning on your savings, focus on repaying your debts first rather than committing more cash to savings.
You should also ensure that you are not paying more credit card interest than necessary. There are some great interest-free balance transfer credit card deals that you may qualify for if you have a good credit rating.
However, if you do choose to put most of your money towards debt repayment, remember to keep some cash aside for unforeseen eventualities.
Tip 7: Try a little gambling
For around £100 you could pick up a NS&I Premium Bond. There are two £1m jackpots every month along with many smaller cash prizes. But, unlike the National Lottery you get to keep your stake money.