I’ve recently received £15,000 through a house sale. The money is currently stagnating in a low interest savings account linked to my main current account.
I write to seek advice on how to maximise my returns without taking too much risk. I already have some money in a company share save scheme so I do not want to invest in the stock market.
I’m looking for a solid savings account, ISA or alternative suggestion. I’m 32 years old, a homeowner and my husband and I are hoping to start a family soon.
If you think you’ll need immediate access to the money, then you can earn up to 1.35% AER with Marcus by Goldman Sachs – but this does need to be opened and managed online. On a balance of £15,000, that would produce gross interest of £202.50.
As you said you are hoping to start a family, perhaps you could tie the cash up for a year to earn a bit more interest in the meantime. The best 12-month fixed term account is the Sharia-compliant BLME 1 Year Premier Deposit Account, which is paying 1.8% AER – which would mean a return of £271 over 12 months.
Sharia accounts differ from mainstream savings accounts because they adhere to the strict code of Sharia banking principles, so savers do not earn a rate of interest; instead they earn an expected profit rate on any funds deposited. That said, these providers are keen to point out that, to date, they have always paid the returns expected.
If you would prefer a standard fixed rate bond that pays a guaranteed rate of interest, then the best offering is currently 1.65% AER from Zenith Bank. And, as a compromise, in between these two ends of the access scale are notice accounts. As the name suggests, you agree to wait for the agreed notice period until you can get at your money but in exchange the rates on offer are generally higher than easy access accounts. At the present time, you can opt for a 90-day notice account with BLME at a rate of 1.71% AER.
Of course, you can go for a mixture of different types of account – meaning you have money accessible for rainy days and emergencies and money tied in to squeeze out higher returns. This also means you can hedge your bets when it comes to future possible rate changes, reacting to improvements, while at the same time not missing out on the best rates at the present time.
Unless you have a lot more cash savings or you are an additional rate taxpayer, you may not need to worry about putting the money in a Cash ISA which, although providing tax-free interest, tends to pay lower rates than standard savings accounts. This is because the interest that you will currently earn on the £15,000 will be less than your personal savings allowance (PSA).
The PSA was introduced in April 2016 and means that basic rate taxpayers pay no tax on the first £1,000 of savings interest earned each year. The allowance is £500 for higher rate taxpayers but additional rate taxpayers do not receive a PSA. Therefore, if you are not currently using your PSA you will not have to pay tax on your savings interest even outside a Cash ISA.
The key is to shop around and find the best savings account to suit your requirements. And beware of accounts advertised that look too good to be true. Make sure that it is a cash savings account from a bank, building society or credit union – and not peer-to-peer lending or other types of investment that look similar but actually have a higher risk profile and may not be protected by the Financial Services Compensation Scheme.
Anna Bowes is the founder and director of Savings Champion
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