As pleased as many people are to see the back of 2020, the new year isn't looking much more promising for savers - average instant-access rates in December plummeted to just 0.19% AER.
Rates had already been falling steadily since around September 2019, but the race towards zero gathered speed after the Bank of England reduced the base rate to a historic low of 0.1% in March 2020 to help bolster the economy against the impact of the coronavirus pandemic.
But, despite the gloomy backdrop, there are still things you can do to make the most of your savings, from combining current accounts to getting your hands on government bonuses. Read on for our round-up of the best savings hacks.
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1. Try the fixed-rate savings hack
As a general rule, the longer you lock your money away in a fixed-rate account, the higher the interest rate you'll receive.
This means having to commit to not seeing your money again for several years, which is something few people can afford to do - particularly when many of the top-rate accounts require you to save a minimum of £1,000.
But, if you split your savings, you can take advantage of the top interest rates while getting access to some of your money each year.
To do this, you'll need to deposit money into several fixed-rate accounts of different terms - say one to five years inclusive - and also keep a little cash in an instant-access account to use at short notice if you need it.
Then, after the one-year account matures, place the money into another five-year fix, and continue to do this until you have five five-year fixed-rate accounts that mature every year.
If you move your savings around in this way between now and 2028, it would work like this:
2. Combine instant-access and fixed-term accounts
If you don't want the rigmarole of moving your money around every year, the simpler version is to split your savings between instant-access and fixed-term accounts.
Keep enough in an instant-access account to act as an emergency savings account, covering at least three months' essential outgoings plus a little extra in case you need to shell out for unexpected bills, such as a new boiler or repairs to your car.
You can then deposit what's leftover into one or several fixed-term accounts, which tend to offer higher rates of interest. Choose a term you know you can stick to. For instance, if you know you're planning on moving house in two years, don't lock your cash away in a five-year account when you might need to access it earlier.
- Find out more:compare fixed-rate accounts
3. Get a government savings bonus
The lifetime Isa was introduced in April 2017 to help people save to buy their first home and/or fund their retirement.
The account can be opened by savers aged between 18 and 39, and you can save up to £4,000 in each tax year until you reach the age of 50.
Whatever you save is topped up with a 25% government bonus, which is paid into your account monthly, meaning your savings could be boosted by up to £1,000 a year, plus any account interest you accrue.
However, you can only use the money to either buy your first home, spend in retirement after you've reached 60 years old, or if you're diagnosed with a terminal illness.
Taking out money for any other reason will trigger a withdrawal penalty. Until 5 April 2021 this will be 20% of the amount withdrawn - but this is a temporary measure in response to the coronavirus pandemic.
From 6 April 2021, the original withdrawal penalty of 25% will be reinstated. The original penalty effectively removes the government bonus plus 6.25% of your own money.
- Find out more:lifetime Isas - should you get one?
Help to Save
The Help to Save account is designed to help those on low incomes get into the savings habit, and there's also a government bonus on what you save.
You could be eligible for a Help to Save account if:
- you receive working tax credit
- you're entitled to working tax credit and receive child tax credit
- you receive Universal Credit and earned more than £604.56 from paid work in your most recent monthly assessment period.
You can save between £1 and £50 into the account each month - although you don't have to pay in every month. The government will then top up your savings by 50p for every £1 you save - but the bonuses are only paid after the second and fourth years of having the account.
You can close the account at any time, but if you close it before these bonuses are paid you'll miss out on them altogether.
4. Check for loyalty rates
Switching your current account and savings accounts is often the most effective way to find the best deals, but some providers will reward you for staying put.
Newbury Building Society, for example, has a top-rate instant-access account paying 1.1% AER that's only available to existing members, while the likes of First Direct, HSBC and M&S Bank have regular savings accounts that can only be opened if you hold one of their current accounts.
Check with your provider to see if it has any similar offers - if it doesn't, it could be worth switching to one that does.
5. Make the most of local offers
Depending on where you're based, keeping your savings local could help you secure a competitive rate, as some regional banks and building societies are able to offer higher rates than bigger nationwide providers.
This can be because there aren't as many stakeholders in the business, and so money the bank makes can be more easily passed onto its customers.
Newbury Building Society crops up again in this case; its instant-access account for new customers is also very competitive, but it's only available for those who live in certain postcodes around Berkshire where it's based.
6. Try your luck at prize draws
Premium bonds are a firm favourite with millions of savers. Provided by National Savings & Investments, each £1 premium bond you hold goes into a monthly prize draw, where millions of prizes are randomly given out each month - including two £1million jackpots.
However, since the prize draw was cut in December, your chances of winning anything are 34,500 to one.
This isn't the only way to win cash from your savings. Nationwide's Start to Save account, for instance, pays 1% AER for 24 months. Every three months, you can be entered into its prize draw to win £100 - your chances of winning are between one in 34 and one in 67, depending on how big the prize fund is.
To be eligible, you just need to make sure that your savings balance increases by between £50 and £100 in each of the three months ahead of the draw.
Meanwhile, the Halifax Savers Prize Draw gives away £550,000 in prizes every month - this is split so three people get £100,000, 100 people get £1,000 and 1,500 people get £100.
To take part, you need to register and have at least £5,000 in a qualifying Halifax savings account or cash Isa. You only need to register once, and you can sign up even if you don't have £5,000 saved yet; you'll be entered into the draw once you do.
7. Combine current account offers
Some current accounts offer higher rates of interest than a lot of savings accounts.
However, there are usually several caveats - many require a certain amount to be paid in each month, for example - so you'll need to check the terms before you sign up.
If you're up for the challenge of moving your money around each month, it's possible to benefit from several of these current accounts simultaneously - simply follow these steps:
- Choose a high-interest current account: our guide on the best high-interest bank accounts can help you find them
- Check how much cash you need to deposit each month: not all high-interest bank accounts have a minimum monthly funding requirement, but the majority of them do.
- Hold the maximum balance that will earn interest: most accounts will only pay interest on a relatively small balance; Virgin Money's current account, for instance, only pays interest on the first £1,000, so there's little point holding any more than this.
- Transfer money between accounts: lastly, to fulfil the terms of any accounts that require a minimum monthly deposit, you'll need to set up transfers to make sure each one receives enough cash. Setting up a standing order will mean this happens automatically.
- Find out more:best high-interest bank accounts
8. Use your Isa allowance early in the tax year
Everyone has a £20,000 Isa allowance, which renews on 6 April at the start of each tax year.
From that date, you have until 5 April the following year to use it - you can either deposit the full £20,000 into a cash Isa, stocks and shares Isa or innovative finance Isa, or split it into several different Isa types.
Try to save into your Isa as soon as the new tax year starts, so it will be earning interest for a longer period of time.
- Find out more:how to find the best cash Isa
9. Opt for compound interest
The interest your savings earns will either be 'paid away' or 'compound'.
Interest that's paid away will go into a separate account, which may suit those who already have a healthy size of savings pot and want to receive interest each month or year as a form of income.
However, the disadvantage here is that the savings held in the account won't grow.
Compound interest, on the other hand, will be paid into your savings account, adding to your balance and therefore generating more interest for the following month or year - assuming you don't withdraw any money before the interest is calculated.
10. Beware regular savings rates
The highest rates on the market at the moment are from regular savings accounts. For instance, NatWest's regular saver pays 3.04% AER - significantly more than any fixed-term account right now.
However, the way these accounts work mean the amount of interest you earn is less than you might expect.
For instance, even if you pay in the maximum £50 to the NatWest account each month, over the course of a year you'll end up with £609.88, which is an effective rate of 1.65%.
Regular savings accounts are still a useful way to get into the savings habit, and a good option if you don't have a large lump sum to deposit.
- Find out more:compare regular savings accounts
