Make your money work harder with savings

The credit crunch has been bad news for borrowers – particularly those with hefty mortgages.

But while the casualties have been the focus of most media attention, the flip side of the turmoil has been a boon for savers.

As fallout from the US sub-prime mortgage fiasco made banks wary of lending to each other it became more difficult and expensive for them to raise the funds they require.

This triggered a mad scramble to attract new customers with cash to invest.

As a result savings rates have shot up to levels not seen for many years.

Yet savers are kissing goodbye to some £8 billion a year by leaving their money languishing in poor paying accounts according to new research by the Post Office.

This is because two thirds of savings accounts pay a paltry three per cent or less. As that isn’t even enough to even match inflation anyone foolish enough to leave their money in such an account will be seriously out of pocket.

It is clear that even with the squeeze on family budgets becoming more obvious every day people aren’t making their money work nearly as hard as it could.

The problem is compounded by a lethal combination of ignorance and apathy. Most savers don’t have a clue how much interest their savings are accruing. And many of those who do are simply too busy or lazy to hunt out better-paying alternatives.

But a little bit of homework can pay handsome dividends.

However, it is worth remembering that while it is wise to have some money tucked away for an emergency it is usually beneficial to clear debts, particularly credit card spending first.

If you are a taxpayer the next thing you should do is utilise your cash ISA limit, now £3,600. HSBC is currently offering investors 6.25 per cent – tax free.

If you are prepared to lock up your money for a year or more there are several providers such as Icesave, FirstSave, guaranteeing seven per cent on one or two-year fixed-rate bonds. Skipton Building Society’s Summer Bond is paying 6.7 per cent gross for sums between £500 and £50,000.

If you don’t want to tie your money up for so long there are still some very attractive deals. Most of the best savings rates are to be found on-line – so you’re in the right place!

Cahoot is currently offering a no-strings account paying 6.55 per cent gross while Birmingham Midshires instant access on-line esaver is offering 6.5 per cent.

But it is important to beware of the short-term temporary bonuses being offered by many savings institutions.

Tesco has just launched a new internet saver account paying 6.25 per cent. But this includes a chunky 1.5 per cent bonus which evaporates after a year reducing it to a mediocre 4.75 per cent.

Some in the industry, such as Nationwide, believe banks and building societies should be obliged to write to customers when temporary bonuses are about to end in the same way mortgage lenders do when a fixed-rate deal is due to finish.

But until banks are compelled to do this – as I personally I believe they should be – the onus is on investors to make a note in their diary and look to move their money at that time.

Shrewd investors will also scan the small print for other stings. Abbey’s e-saver pays a competitive 6.5 per cent. This not only includes a 0.75 per cent bonus for the first year but the interest rate drops to a miserly 2.75 per cent in any month a withdrawl is made.

By CLINTON MANNING

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