Beat inflation through your current account
With savings accounts offering such disheartening rates at the moment, a surprising way to get a decent return might be through your current account. Some banks are offering rates that beat inflation to their existing current account customers in the form of regular saver accounts.
These typically offer better rates, but you have to commit to paying a minimum amount each month and you can only invest relatively small amounts. For example, First Direct's Regular Saver offers a massive 6%, but is only available to those with the bank's 1st Account. You are limited to depositing a maximum of £300 a month or £3,600 a year. The 1st account comes with no fee if you pay at least £1,000 a month into the account, but if you can't there is a £10 monthly fee.
M&S Bank's Monthly Saver also offers a rate of 6%, and allows you to save between £25 and £250 a month, and no more than £3,000 a year. However, to get the savings account you need the M&S Premium Current Account, which comes with a £10 a month fee.
Anna Bowes, director at Savings Champion, warns consumers to ensure they know the charges before getting the accounts. "Many of these regular savings accounts pay headline-grabbing rates. However, as they normally have a low maximum monthly deposit, the overall amount of interest earned may actually be smaller than you think - and the benefit could be negated by any monthly fees applicable on the current account."
Bowes recommends: "It's always important to take out a savings account that meets your needs, rather than making your needs fit your savings. However, if you're willing to switch your current account you may be able to access some of the best savings rates on the market."
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.