Savers are not being rewarded at the moment, with some of the lowest interest rates in living history making it pretty dismal for anyone who has a few extra quid to stash away. These days you have to be a little clever with your money, in order to make it work for you, but if you know the tricks, you can end up with more than you started. Money Saving Expert Martin Lewis has devised a ‘savings fountain’, so called because you use certain savings accounts to maximise your cash, then move this overflow onto other accounts with the next best rates.
You have to be on the ball using this method however, as savings rates can change on a daily basis, but if you keep checking back with Martin, you’ll be sure to be on the money with the best accounts and where to put your cash. For the moment, here are his tips on the various fountain tiers:
1. Start off with a regular savings account
If you are prepared to pay into a regular savings account you can earn up to a whopping 6%. However, you can only put in a limited amount each month and they typically only last for one year. Once the year is over they switch back to a bog standard account. The key is to use them as a savings account for the year, make a note of the date then dump them for another or move your money on to something else.
Martin’s top savings accounts are First Direct’s Regular Saver, which gives you the massive 6% AER on deposits we were talking about, of up to £300 a month for a year. You do need to have its current account however to operate the savings account, but it is worth thinking about switching as new customers get £100 and their customer service is renowned. Next up is HSBC with a 4% deal for its customers, but you also need to have their bank account. If you don’t want to switch current accounts, Leeds Building Society is available to all regular savers and offers 3.05%.
2. Cash ISAs – tax-free saving
Many people do not understand what a cash ISA is and believe that once your money is in one you cannot get it out. A cash ISA is simply a savings accounts that you do not pay tax on where you pay in up to £5,760 each tax year. There are ones in which you cannot withdraw your cash, these will have better interest rates, but many are easy-access. If you already have one check what interest rate it is paying, you should be looking at around 1.75%, as is the Co-op Bank’s. And if your rate is variable and drops, swap it to another with a better one.
3. Earn 5% via bank accounts
Martin always used to say never leave your money in a current accounts, but it seems that these days he’s changed his mind. This is because the banks are using extra high interest rates in their current accounts to attract new customers. For example, Nationwide FlexDirect is paying 5% AER – only for a year, and only on up to £2,500. Martin recommends the Santander 123 account, which is paying out 3% interest on all savings between £3k-£20k. There is a £2 a month fee, but then again, but you are getting 3% cashback on bills, eg, 3% on phone, 1% on council tax. With both these accounts you have to properly switch to them, that means changing over your direct debits and standing orders etc And there is a monthly minimum pay in of £1,000 and £500 respectively.
4. Lock in to boost savings rates
Back to the fountain tiers, now that you have maxed out your regular savings, we move on to the normal ones. You have to consider whether you want to lock away your money for a period of time. If you do you will definitely receive better interest rates. However, most experts are predicting that in the UK at least rates will rise in 2015 so don’t lock them away for too long.
Martins best lock aways for one year is the Post Office which gives 1.8% AER. The best one year cash ISA the Co-op Bank, at 1.85% AER. The best two year lock away is the ICICI Bank UK which gives 2.4% AER, and the best two-year cash ISA is again the Co-op Bank at 2.05% AER.
5. Every UK-REGULATED account gets a £85,000 safety net
Finally, it is worth remembering that you are covered by the Government-backed Financial Services Compensation Scheme (FSCS) for up to £85,000 per person, per financial institution. So, if you have more than £85,000, split it into different banks and funds to make sure you are covered.