Are your savings accounts earning the best interest rate? If not, it’s time to vote with your feet so your cash works harder for you
A raft of computer glitches has created chaos for banking customers over the past year – with IT problems reported at Tesco Bank, RBS and, most memorably, TSB. These glitches help to explain why the number of people switching current accounts has risen by 6% year-on-year.
While we might be getting better at switching current accounts, when did you last move your savings account or Isa? A recent survey by Moneyfacts found that 77% of us find savings accounts too complicated, which may be why some people don’t switch. But the process doesn’t need to be stressful. Here are four ways to boost your savings income.
- Goldman Sachs launches market-busting 'Marcus' 1.5% easy access savings account to take on British banks
Switch and make £90 a year
The average instant-access savings account pays 0.51%, while the best pays around 1.4%. Shift £10,000 to a higher-yielding account and you‘d make an extra £89 a year.
Switching savings accounts is a fairly straightforward process. There is no official switching service, so you’ll need to choose your new account, open it then move your money from your old account. This can be done using online banking or you may wish to close the account and arrange for the money to be moved to your new account in a branch.
Just make sure you check that your existing savings account doesn’t have any exit penalties before you withdraw your money, as these could exceed the potential benefits of switching.
Move Cash Isas to boost tax-free savings
“As with any type of savings account, it is important to keep a close eye on the interest rate you are getting on your Cash Isa,” says Tom Adams, head of research at comparison site Savings Champion. “If you are not happy with the rate, this is where Isa transfers come into play.”
Switching Cash Isas is a little more complicated than moving an ordinary savings account because you need to be careful that your money doesn’t lose its Isa status during the move. Done correctly, an Isa transfer allows you to move existing Isa savings from one Isa to another without the money counting towards your annual Isa allowance.
“You should never take money out of a Cash Isa yourself with the intention of moving it, as that money will no longer count as Isa funds. If you subsequently try to pay it in, it will count towards your annual Isa allowance – which, of course, you won’t be able to do if you’ve already paid into a cash Isa in the same tax year,” says Mr Adams.
The best way is to select your new Cash Isa and check it accepts transfers in from other Isa accounts. Then you simply need to give your new Isa provider all the details of the old Isa you want to move to them – and they will complete an ‘Isa transfer’ to shift the money into your new account.
The best savings accounts and Isas to switch to
|Account type||Provider||Interest rate and benefits|
|Instant-access saver||Marcus by Goldman Sachs||1.5% (including 0.15% bonus for 12 months)|
|Fixed-rate bond||Close Brothers Savings||2.69% for five years|
|Fixed-rate Isa||Furness Building Society||2.2% for five years|
|Current account - cheap overdraft||First Direct||£250 (0% overdraft plus a range of freebies for switching)|
|Current account - interest||Nationwide||5% interest on first £2,500 for 12 months|
|Source: Moneywise.co.uk, as at 14 September 2018|
Review your Stocks and Shares Isa
It’s not a good idea to regularly switch your Stocks and Shares Isa because you could face trading fees and run the risk of crystallising investment losses. However, that doesn’t mean you shouldn’t move if you are unhappy with your existing provider.
“It sometimes makes good sense to move your Isa share portfolio – especially if you can find a provider with lower fees, dealing charges or commission,” says independent personal finance analyst Andrew Hagger.
The first step is to choose a new provider. Make sure you consider the range of funds on offer, as well as the fees and charges. Then check that they accept Isa transfers.
You have two choices when it comes to transferring in the funds. One option is a cash transfer, which means your investments are sold and the proceeds are moved to your new provider who re-invests in the same stocks and shares. Your money will retain its Isa status but will be out of the stock market during the switching process. This means you run the risk of prices moving while you are transferring your money and you may have to pay trading fees, Mr Hagger notes.
The other option is an ‘in specie’ or stock transfer. This means you hold on to your portfolio, which is transferred from one investment platform to another. This is a much longer process – it can take five to six weeks – but you won’t incur trading fees or risk being out of the stock market for a period.
“Whichever option you choose, find out what fees are payable before you give the go ahead for the switch to take place,” says Mr Hagger.
“If you’re often in the red, pick an account with low overdraft charges”
Make the most of deals
One area of your personal finances where you should consider switching regularly is your current account – a process that is incredibly simple these days. Moving regularly allows you to make the most of new deals and any switching bonuses on offer.
Current account switching levels are steadily increasing, as more people wake up to the fact that a simple move can significantly improve their finances. Get the right account for your needs and you could eradicate your overdraft fees or start earning a healthy return on your balance.
“Don’t base your decision purely on a cash incentive; it might be a nice initial bonus, but it could cost you dear in the long term if the account isn’t a good fit for the way you run your day-to-day finances,” says Mr Hagger.
“Opt for an account that mirrors your normal bank balance. If you’re frequently in the red, pick an account with low overdraft charges.”
While you are filling out the forms for your new account, you will need to confirm if you wish to use a switching service. As long as your new bank is backed by the Current Account Switch Service – most of them are these days – they will take care of moving your money and making sure that all of your existing direct debits, standing orders and incoming regular payments are transferred to your new account. The guarantee also means any fees or charges you incur as a result of your switch should be refunded by your bank.
Ruth Jackson is a freelance personal finance journalist who writes for The Times, MoneyWeek and LoveMoney