The smarter way to save

It's not much fun being a saver at the moment. Spencer Dale, the Bank of England's chief economist, said as much recently when he admitted that slashing interest rates to 0.5% had pushed many households, particularly those of pensioners, into real financial hardship.

"I have the utmost sympathy for the hardship faced by many pensioners and other households dependent on the flow of income from their savings," he said in a speech delivered in London just before Christmas.

"They played no role in fuelling the financial crisis but have been badly hit by the reduction in interest rates that followed.

I understand that the burden of interest rate cuts falls most heavily on savers. And I can understand why, to many, it seems unfair that those with high levels of debt and borrowing should now benefit from lower rates."

Of course, these are fine words from Dale but they provide little comfort to the millions of savers who have seen their income undermined, not just by low interest rates but also by niggling inflation.

The value of £10,000 of savings has fallen to just £9,210 in the past five years, thanks to low interest rates and high inflation. For a basic-rate taxpayer, a savings account now needs to pay 5.25% to beat inflation. For those paying tax at 40%, the figure is 7%.

The eight inflation-beating savings accounts


Savers, understandably, remain angry and frustrated. Indeed, a recent article on Dale's comments attracted nearly 100 comments from readers. Of those that are printable, readers talked about the economy being rescued "at the expense of savers"; and savers being victims of "statesponsored theft on a grand scale".

As Ros Altmann, director general of over fifties financial services company Saga, says: "We have a group in society who have done the right thing [save] and have been treated as sitting ducks."

She adds that savers have been the victims of "silent theft". Is there anything savers can do to mitigate the impact of this horrible economic backdrop on their hard-earned savings? Unfortunately, there is no magic wand I can wave. But let me make two little suggestions to brighten your otherwise grey savings day.

Cash ISAs

First, ensure you use your annual cash ISA allowance, thereby removing the taxman from the savings equation.

Currently, a maximum of £5,340 can be saved in a cash ISA during the tax year ending 5 April 2012. From 6 April 2012, the annual allowance climbs to £5,640.

My view on cash ISAs is simple. It should be your first port of call for savings. Use it or lose it - that's my motto.

Savings accounts

Second, don't allow your savings to wither on the vine, attracting only minimal interest.

Currently, some £200 billion of deposit savings are languishing in accounts paying interest of less than 0.5%, while there are nearly 400 bank and building society accounts paying rates of 0.1% or less.

If your savings fall into these two camps, make it a priority to find
your money a new home paying at least 3% interest. Fixed-rate bonds and online accounts tend to pay the best rates.

In this regard, the launch of Savings Champion ( is a most welcome development in the savings space. Its website updates the best savings accounts daily and provides information, advice and guides for savers – as well as a wonderful ‘Rate Tracker' service that alerts customers when their own savings rates have changed or when a savings bonus is coming to an end.

Given savings rates change all the time and short-term bonuses are now a common feature of the savings landscape, Rate Tracker is a splendid development. Use it.

Jeff Prestridge is personal finance editor of Financial Mail on Sunday. Email him at

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Your Comments

 "The smarter way to save."
1) Take out an ISA.
2) Move your money to a higher interest account.
3) Go to
Well, whoopee-doo

Well said Uncle Pumblechook