How to get the best return on your savings

How to get the best return on your savings

By Paul Lewis

You’ll need to move your savings around to get a return, says Paul Lewis

For the 88th month in a row the Bank of England has decided not to change the Bank Rate from its historic low of half a per cent.

It was widely expected it would be cut in July to either a quarter per cent or zero after Governor Mark Carney said that after the Leave vote, “The economic outlook has deteriorated and some monetary policy easing will likely be required over the summer.”

Despite that broad hint the Monetary Policy Committee decided to make no change by eight votes to one – including Carney’s. But the summer is a long time in Monetary Policy and a cut on 4 August – which most members of the Committee expect – is still well within that season.

There may also be more than just a rate cut in store. It discussed “various easing options and combinations” of them. That could mean more money printing (called Quantitative Easing) or even a return to Funding for Lending (which is when the Bank of England lends money to banks at crazy low rates of around 0.75 per cent).

Any or all of these changes will be bad news for savers. There have been thousands of cuts in rates paid on savings over the past few years. The biggest falls came when the first Funding for Lending programme began in July 2012. The result is that one in three easy access accounts already pays less than 0.5 per cent, which means £5 interest a year on every £1,000 you save. But there are many new banks that offer more. So it is more important than ever to manage your savings using what I call Active Cash.

Research I did recently shows that Active Cash beat a fund that tracked the FTSE 100 Index more often than not in the years from 1995 to 2015. And unlike the FTSE 100 tracker, it never lost money for the investor.

By Active Cash I mean putting your savings in the best one-year deposit accounts – currently Charter Savings Bank, which pays 1.79 per cent.

A year from now, check again and move it all to the best buy then. It will take you 20 minutes and nowadays transfers are pretty much instant.

Managing your cash that way means you always get the best current deal and the rate paid is guaranteed.

This year the first £1,000 of interest you earn is tax free if you are a basic-rate taxpayer (£500 for higher-rate taxpayers). Do not put more than £75,000 in any one bank.

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