It’s obvious to see how far cash savings have fallen over the years and how increasingly difficult it is to avoid inflation eroding your nest egg. In stark contrast are the striking potential returns that can result from investing in stocks and shares. But it’s worth remembering that fund values can fall as well as rise – so if the market drops, it’s bad news for your original investment.
Those who are not prepared to gamble their cash may have to think differently. Cautious savers putting money aside may still prefer to invest in cash to get a simple return of interest as a reward for investing with that provider. These savings can make it a lot more straightforward to plan ahead – if you have something specific in mind. Here is a run-down of the best deals for different goals.
High interest current accounts
Some of the most lucrative cash rates around today are on offer from current accounts, which may well be grabbing savers’ attention. TSB offers 3 per cent AER on its Classic Plus on balances up to £1,500, but there are limitations such as the requirement to fund the account by £500 per month and signing up to online banking and paperless statements. These obstacles may still be worth doing though as the account also pays £5 for making 20 debit card payments each month and £5 for holding two direct debits. It’s quite a decent bundle, but the temptation to withdraw cash and not stick to a savings plan might be too great.
Regular savings accounts
Regular savings accounts are ideal for those who want to be more focused while saving for a short-term goal – usually over a year. The best rate for new customers comes from Saffron Building Society, paying 3.5 per cent fixed for 12 months and only requiring a minimum of £10 per month, with a maximum of £2,400. However, if savers search deeper they could get an even better rate by switching their current account and applying for a regular saver with some of the biggest high street brands. Nationwide offers a Flexclusive regular saver paying 5 per cent, for instance, into which savers can put £6,000 in total over the year. Savers who do not want to switch their current account can find other deals that still pay decent interest. Aside from Saffron’s deal, there’s Kent Reliance, which pays 3 per cent on a maximum investment of £6,000. Impressive when considering the average easy access account pays 0.39 per cent.
Easy access accounts
Savers must not be deterred from searching for a good deal even for an easy access account, however, as their apathy could mean missing out on much better returns. As an example, someone with £20,000 in a NatWest Instant Saver would earn just £2 over a year, while they could earn £230 if they held an easy access account with Kent Reliance paying 1.15 per cent instead, which is currently the top deal. Savers will find that many of the best easy access deals on the market right now are from challenger banks and usually require applicants to apply online. It’s therefore vital that savers sign up for alerts and regularly visit websites such as Moneyfacts.co.uk to study the top rates.
It can be a real struggle to raise enough cash for a deposit towards a home, but for those who are under 40, they can choose a Help to Buy ISA to get a 25 per cent government bonus on the cash they save at the point of buying their first home. Currently, Barclays offer the best cash rate on a Help to Buy ISA of 2.25 per cent gross. Those who are not eligible would find that spreading cash across high interest current accounts as well as regular savings accounts will be the best tactic to ensure a healthy amount is saved towards a deposit.
Savers also have Lifetime ISAs to consider, but so far only Skipton Building Society offers a cash Lifetime ISA, which pays 0.5 per cent. It’s worth remembering that Help to Buy ISAs have a deadline, too, so it’s important to weigh up all the options available.
Whatever savers decide to do with their cash, if they aren’t online they could well be missing out on not just savings alerts, but also some of the best deals out there. Regardless, it’s important savers don’t succumb to apathy when it comes to their nest egg.
Rachel Springall is a Finance Expert at Moneyfacts.co.uk