This piece first appeared in Saga Magazine in February 2008
The text here may not be identical to the published text

 

Make Your Savings Work

CASH IS KING

The banks want our money. Correction. The banks need our money. Because at the moment they are finding it very hard to borrow from each other. And that means they are willing to pay us top rates to get their hands on our savings. So there has never been a better time to make sure every penny we have in the bank is earning its keep. You should aim to get at least 6% on your savings and another ½% above that on fixed term savings. Even cash in your current account should be earning money.

Cash ISAs
The first stop is a cash ISA. It is just a savings account where the interest earned is free of tax. The one restriction is that you cannot put more than £3000 into it this tax year. You can take money out when you like but if you have already put in the maximum in that tax year you cannot put it back. In 2008/09 the limit rises to £3600. So you can put £3000 in now and another £3600 on 6th April. Because they are so flexible cash ISAs are good even if you are just saving up for Christmas or a holiday. You can move money from one ISA to another without losing its tax-free status as long as you let the banks make the transfer
.

Banks can impose their own rules on ISAs. Some demand a minimum payment in or want notice before you take money out. And some will not allow transfers from other ISAs. Generally accounts with these restrictions are best avoided.

Savings accounts
If you have £1000 to save the top accounts pay more than 6%. But some pay very little – 2% or less. If you have one of those move your money as soon as you can. But be aware of the cunning tricks banks try to tempt you with.

Very few accounts are good value year after year. Having got their customers the banks then let the rates slip. So check your account every year at least.

Fixed term savings
If you are willing to tie your money up for a year or more then you can get better rates in what are called bond or fixed term accounts. This must be money that you definitely will not need for the length of the term. Some have a short period – even as low as three months – and rates are often very good. Others commit you to between one and to five years. At the moment shorter periods offer better rates.

Tax
Tell the bank if you do not pay tax – this year that means an income of less than £7550 if you are 65 to 74 and next year that rises to £9030. Allowances are slightly more if you are over 75 and rather less if you are under 65. Your interest will then be paid gross without tax being deducted. Couples should consider moving the money into the name of the person paying no tax or tax at a lower rate.

Current accounts
Most banks pay a standard 0.1% on the money in a current account. That means if you have £1000 in there for a year it will earn just £1 (and if you pay tax that will be cut to 80p). But some pay a lot more - aim for at least 4%. Generally the best deals are to be found among the building societies. The banks are more likely to make tempting offers that are not quite what they seem.

Moving a current account
It used to be difficult to move a current account but nowadays it should be relatively simple. Open the account with your new bank. Tell your old bank you are moving to the new bank. The old bank must cooperate fully with the move and has to tell the new bank about all your standing orders and direct debits within five days. However, if you have any regular payments into your account you will normally have to contact the payers yourself to inform them of the change. Once the new account is running check that everything has been transferred.

Safety
Money in a bank or building society is safe. The problems at Northern Rock showed us just how safe it is. The first £35,000 in any bank or building society is covered by a guarantee – you will always get that back if the bank does fail. The super cautious who have more than that might want to split the money between different banks – but make sure they are unrelated or the £35,000 limit will apply to all. Husbands and wives get separate protection as do joint account holders.

Best buy tables
It is impossible to choose between the thousands of savings products without help. If you have internet access you can check the best rates from comparison sites like
www.moneysupermarket.com or and www.moneyfacts.co.uk. There is also an official set of tables at www.fsa.gov.uk/tables. If you do not have a computer at home then use one at your local library. Newspapers publish more limited best buy tables. Comparison sites are useful but try at least two and beware the accounts that appear above the tables but are in fact adverts. Not all accounts, particularly those from the smaller building societies, are in the comparison tables. Always check the terms and conditions of any account very carefully before committing yourself to it.

 


All material on these pages is © Paul Lewis 2008