Make your savings work harder and save up to £145!

The whole point of stashing your hard earned cash in a savings account is to grow your money at a decent, protected rate, ready in waiting for that rainy day. However, did you realise that there is a very real possibility that your savings could actually be losing you money in the long run.

How can that be? I hear you ask. Well, it’s all down to inflation, the rate at which the prices of goods and services increase over time. This is traditionally measured using the Consumer Price Index and to be profitable your saving account needs to offer a post tax inflation rate that beats this figure. If your savings aren’t keeping up with inflation your money will actually be decreasing in value and losing its buying power over time. However, for the best return you should look for an account that offers interest payments in line or above the Bank of England base rate.

Making the most of your money

Where you stash your savings can really make a difference to the return you’ll get on your money and surprisingly for most of us this means avoiding straight forward savings accounts, at least to begin with.

If you are a UK tax payer it may surprise you to know that 20% of the interest earned on your savings will be deducted as tax, a figure that increases to 40% for those who pay tax at a higher rate. This deduction can make a serious dint in your interest return and can turn a profitable account into one that’s loosing you money. Thankfully there is a tax free haven available for at least part of your savings, this is in the form of Cash ISAs (individual savings accounts) and for many of us these should be the first port of call when looking for a new savings account.

You can invest up to £3,600 per year in a cash ISA free from tax (this increased from £3,000 on 6th April, 2008) and if you pick carefully its possible to find incredibly attractive rates of interest. However, the whole concept of this tax-free allowance can be a little tricky to get your head around so click here for a more detailed explanation of how Cash ISAs can be used to maximize your savings.

So what next?

If you’ve used up your yearly ISA allowance and still have cash left over you should look to a high rate regular saver account as the next best place to store your pennies. Regular savers do tend to offer better returns than those available with standard saving accounts. However, they’re often tied up with complicated terms and conditions that restrict how much you can pay in and withdraw each month. For this reason it really pays to familiarize yourself with the account Terms and Conditions before you start saving.

In addition, it’s a good idea to run a flexible, high interest saving account alongside the aforementioned savers. This will not only enable you to earn a decent return on any excess cash that doesn’t fit in these pots but also provides you with a place to store funds that will be later transferred to your regular saver. It can be a good idea to set up a standing order between your standard and regular saving accounts so that exactly the right amount of cash is drip fed across each month, maximizing your money’s earning potential and ensuring that any remaining funds are growing while they wait.

Maximising your profit made easy

There are so many savings accounts on offer that choosing the right one can seem like a bit of a daunting prospect. Ideally you want to look for the account that offers the highest rate of interest; however you also need to check the small print.

It’s important to be aware that many providers entice new customers with headline grabbing rates only to drop them shortly after. By the same thread, many accounts offer introductory bonuses with high rates that will only be applied to your savings for the first 6 months or so, masking what is really a mediocre account.

If you’re happy to rate chase then a savings account with an introductory offer could provide you with a really good deal. However, this will only be worth your while if you can (and will remember to) move your money without penalty after the initial interest offer expires.