Are you doing enough with your savings?
In Britain, we're simply not saving enough. The latest figures from the Office for National Statistics show the household saving rate was 5.9% in the last quarter of 2012, compared to 4.2% in the first quarter of 2013.
One reason why households aren't putting enough aside is because savings rates are so poor. Many people simply do not see the point in depositing cash in a bank or building society that is paying just 0.05%.
According to Bank of England data, the current average branch-based savings rate is paying 0.26%. On a £10,000 balance, this equates to a paltry £26 interest a year, of which the taxman will still want his slice. By comparison, the current market-leading easy-access account, BM Savings Online Reward, pays 1.70%, which would generate £170 in interest over 12 months on the same £10,000 sum.
The difference between the best and worst savings account is £144 in this example - money that's going begging for those content to remain on an inferior rate. But for fixed-rate products of three, four or five years, the discrepancy between best and worst interest rates can be even higher, making the argument to switch a no-brainer.
But even so, one in four savers currently claims rates are so low it isn't worth switching accounts, according to research by MoneySuperMarket.com. This isn't surprising – savings rates are so low that some current accounts are actually paying more.
Moreover, as at December 2013, banks and building societies are pulling their top-paying fixed-rate bonds just as almost 500,000 savers are about to see their own fixed- rate deals expire. For example, BM Savings has closed its one-year bond – paying 2% – while Coventry BS's Poppy Bond (2.6%) has also closed.
Apathy can damage family finances. Research from HSBC has found more than a third of people in the UK – around 8.8 million households – only have £250 or less set aside as a safety net.
The survey of more than 1,000 UK households found a quarter (25%) have no savings at all to fall back on, while one in 10 has £250 or less. The bank says that, based on average monthly outgoings of £1,500, the latter group would last just five days before running out of funds.
All of the above statistics are glaring adverts for why our Beat The Banks campaign should be adopted across the country. Those risk-averse savers whose money is languishing in poor-paying accounts – as well as those people who do not believe it is worth saving because rates are so poor – must act now.
MoneySuperMarket's head of banking Kevin Mountford says: "It really is important for consumers not to be apathetic about their savings accounts. Although rates may be low, the benefit of switching can be significant, and in some cases add up to hundreds of pounds if you have a sizeable savings pot.
"People can earn extra interest just by being proactive and switching to better-paying easy-access accounts or even current accounts."
Here's our checklist for how savers can Beat The Banks:
Check your rate
If you already have cash in a savings account, check the rate to determine whether you need to switch (and once you have switched, continue checking regularly – see below), as even the rate on the best-paying account can fall dramatically in a short space of time.
"Over time, bonuses expire or rates are chipped away at so what you then receive could be less than appealing, so it's vital to make sure you're monitoring your money over the longer term," explains Anna Bowes of Savingschampion.co.uk.
In November 2012, for example, one of the best easy-access savings accounts was the Post Office Online Saver (Issue 8) - paying 2.35% gross. As this rate included a bonus of 0.70%, the rate was always due to fall after 12 months; however, in addition, the underlying rate on this account has also dropped – so the current rate is now just 0.90% gross.
Search the market
In a savings market where there are so many providers and products, it's next to impossible to trawl the market yourself. You're better off using a comparison website to find the most suitable savings account for your money.
A good starting point is our own comparison tool at Moneywise.co.uk/compare – it allows you to choose what type of account you want or, if you are interested in a fixed-term account, input which timeframe you prefer to lock your cash away for.
Choose a suitable product
If you've never saved before, you'll need to check whether you want an easy-access savings account or a fixed-rate product of some type. For example, if you want to interest rate you earn on your savings and are happy to lock your money away for a set period of time, then a fixed-rate product might be for you. However, if you want to make additional deposits beyond the upfront opening deposit, or make withdrawals, then a product with easy access might be best.
Use your cash Isa allowance
If you're a UK taxpayer, then a cash Isa should be the first port of call for your savings. Everyone aged over 16 can save up to £11,880 in an Isa during the 2004/15 tax year – of which £5,940 can be saved in cash. This means all interest you earn in your Isa is free of tax, so a cash Isa should always be the first home for your savings.
Don't ever think it's too much hassle to switch savings account. Once you've chosen a new provider, all you have to do is apply - your new provider will open the account for you and, once it is done, you can simply transfer your funds from the old to the new. Ideally, you'd then close your old savings account.
However, if you are switching between cash Isas there are rules you'll have to follow. Your old and new Isa provider should communicate between them to transfer your money, while at the same time ensuring you still enjoy the tax-free benefits. Don't worry about the admin: your new provider will do the legwork.
Check the current account market, too
"Incredibly, savers can earn more interest through their current account than most savings accounts at the moment," says Mountford. "This is especially appealing for those savers out there who have been looking for decent returns on their savings over the last year."
There are limits to how much you can invest in any tax year. For 2011/12, the limit is £10,680. Of that, the maximum you can invest in cash is £5,340 and the balance of £5,340 can be invested in shares (individual company shares or investment funds). If you don’t take the cash ISA allowance, you can invest up to £10,680 into a stocks and shares ISA.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
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.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.