Easy ways to boost your savings

9 December 2011

1. Use your ISA allowance

The cash ISA limit for 2013/14 is £5,760. Any savings put into a cash ISA are exempt from tax, which means you'll receive all the interest you earn. The average ISA interest rate is 1.85% AER - but you can earn considerably more or less depending on how long you want to tie your money away for.

Check out our round-up of the best cash ISA rates available

2. Build up emergency savings

Before you lock your money away in a higher-paying fixed-rate account, build up at least three to six months worth of salary in an easy access account. This way, you'll have money you can get to easily in case of an emergency.

3. Loyalty doesn't pay

Bonus rates often beef up interest rates but once they come to an end your savings rate could be dropping to next to nothing.

For example, Nationwide's Easy Saver ISA, which pays 2.25% for the first year, drops to 0.5% after that.

Keep a note of when bonus rates end so you can move your money to a better account.

4. Inflation-proof your savings

Inflation remains high at 2.8% (CPI) - still 0.8 percentage points above the government's 2% target.

There are no inflation-linked bonds that link to the retail prices index (RPI) - the other measure of inflation that includes housing costs. But Virgin Money, Dudley Building Society and Newcastle Building Society are among those with inflation-busting fixed-rate bonds.

5. Consider an offset mortgage

If you've got a mortgage and a reasonable level of savings it may be worth considering an offset mortgage. Your savings are offset against your mortgage debt, therefore reducing the sum of money that you owe interest on.

For example, if you had £15,000 worth of savings and offset this against a 25-year £150,000 repayment mortgage, charging 3.5%, you would save £18,690 in interest and repay the mortgage one year, 11 months early.

6. Got a lump sum? Fix!

If you've got a spare stash of cash it could be worth securing it in a fixed-rate account. These accounts offer better interest than variable-rate accounts.

However, many require a large deposit. Of course you won't benefit from any interest rate rises but they are also a good way of locking away money that you don't want to be tempted to touch.

How to best invest a lump sum

7. Little and often

Not all of us are fortunate enough to have large deposits we need to offload but even if you can only save a minimal amount, saving on a regular basis will get you in the mindset of saving.

Regular savings accounts demand as little as £1 a month. Set up a direct debit to come out of your current account just after you've been paid.

8. Watch out for penalties

Some accounts have limits on the number of withdrawals you can make, while others will penalise savers for making withdrawals with a loss in interest.

9. Look out for capped interest

Some accounts will only pay the headline interest rate if a saver deposits enough money into the account each month. Take Aldermore's notice savings accounts: savers must keep at least £1,000 in their accounts at any time to benefit from the higher interest - failure to do so will see the interest drop to 0.5%.

10. Take advantage of preferential rates

Current account holders may be able to benefit from higher interest rates on their savings. HSBC pay their current account customers 8% interest with their regular savings accounts. Only HSBC customers with paid-for packaged accounts can take advantage of the 8% rate, however.

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