In these unpredictable times personal finances may have come under the spotlight a little more than we’d anticipated at the start of the year and for some the carefree thoughts of holidays abroad, extravagant shopping trips or even a good night out with friends have been replaced with worries about whether you are making the best use of the money you still have and where further savings could be made.
There’s no doubt about it, the interest rates on savings are dismal. According to This is Money, back in December 2015 you could achieve 2.95% on an instant access account and 3.65% if you locked your money away for two years.
As at September 2020, the rate has fallen to around 1.1% for instant access and 1.4% for a two year fix.
These rates are unlikely to improve significantly in the next few months, but there are things you can do to make your spare cash work harder.
Pay off your debts
With interest rates on savings paying so little, it makes no sense to earn a pittance on your cash while paying more for your debts. Pay the most expensive debts off first – start with store cards, credit cards and overdrafts, then consider whether you are able to put money towards paying off personal loans or your mortgage.
Not all mortgages allow overpayments, so be sure you know if they are allowed, and if so, what regulations are in force (you may only be permitted to pay a lump sum over a certain amount, or you may be only allowed to repay 10% of the outstanding debt in any one year). Unless you have a flexible mortgage you are unlikely to be able to get money back, once you have paid it, so it’s worth making sure you hang on to some easy access cash for emergencies, even if the interest rate is poor.
Cut your costs
Small, regular saving can still mount up, even in a low-interest climate, so it’s worth looking at where you might be able to cut costs in order to save harder. If your mortgage fix or discount comes to an end in 2020, or even early next year, start reviewing your options now. Not only will you have plenty of time to find the right deal or to see a broker for advice, you can sometimes lock in a low remortgage rate as far as six months in advance.
Keep an eye on other costs too – see if changing energy supplier could bring monthly savings, and look at contracts for broadband and mobile phones. You might even find you are paying for things you don’t need at all, like TV channels you never watch, or memberships of clubs or gyms that you can no longer enjoy as you used to, because of current COVID-19 restrictions.
In many instances you won’t pay any tax on your savings, regardless of where you keep them, as you can use your personal allowance, the £5,000 tax-free starting rate for savings if you earn less than £17,500 and the Personal Savings Allowance that allows you £1,000 interest tax-free if you pay basic rate tax and £500 if you pay higher rate tax. Those who pay additional rate tax don’t receive this allowance.
Everyone can also save up to £20,000 a year tax-free in an ISA, however you can’t carry this from year to year, it must be paid in within this financial year. The financial year ends, each year, on April 5, so if you haven’t paid in the full amount through the year before, and you are able to do so, it makes sense to pay it in before the deadline. You can pay into an existing ISA or open a new one.
Don’t just assume your bank will give you a good return on your savings; make the most of online comparison tables to see if it will pay to move your money. Sometimes current accounts or regular savings accounts offer better rates, as do fixed-rate accounts if you are in a position to lock your money away for a year or two. If you see a top-ranking deal, make a decision fairly quickly, as these are often short-lived and sell out quickly. Most accounts can be applied for online in a matter of minutes.
Be wary of too-good-to-be-true offers, however, as these are probably not savings accounts (where your original deposit money is protected) but investments where your capital is at risk. Read the small print very carefully – Peer-to-peer lending schemes, in particular, can often look a lot like savings accounts at first glance, but are actually quite risky investments.
So, although no-one knows with any certainty what the future will bring it makes sense, perhaps with more time on your hands, to renew your savings now and make sure that when things do get back to normal, you are in a better position to enjoy it.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE. Embrace Financial Services usually charges a fee for mortgage advice. The precise amount of the fee will depend upon your circumstances but will range from £499 to £999 and this will be discussed and agreed with you at the earliest opportunity.