When it comes to your savings, it’s time to put your foot on the accelerator and move up a gear.
Imagine this…
You have a beautiful classic car – collectable and in excellent condition. It’s sitting in your garage – idling. Your classic car is also in danger of seizing up because you never turn the engine over. What do you do?
The same applies to your savings. If they sit idling in the same low interest savings account you’ve had for years, they might not be working in the best way for you. The savings that are giving you a next to nothing return, are in danger of failing you because they cannot even begin to keep up with inflation, which is rising hard and fast. Time to take advantage of the good driving conditions, time to take advantage of higher interest rates.
So… take your car out of the garage and get the wheels in motion. Get your savings out of your old savings account, blow off the dust and cobwebs, and speak to your financial adviser to get the best out of your finances.
Here’s why…
The Bank of England has increased interest rates; they are now at 3%1 and forecast to rise higher, so it’s time to get the classic car (your savings) out of the garage and performing at its best.
Now here’s where you might think you just need to sit back and relax. Your current high street bank will increase interest rates and you will reap the rewards, but this is not always the case.
Some of the well-known high street banks offer lower interest rates than smaller banks and building societies; perhaps banking on clients sticking with the tried and tested rather than branching out with lesser-known smaller banks.
While the big high street banks may offer high interest on your first £1,000 to ‘hook you in’, any amount above £5,000 can often switch to a much lower rate. NatWest and RBS are an example of banks offering high rates which then switch to low interest rates.2
What if…?
Before you become nervous about using smaller or lesser-known banks, it is worth noting that all UK banks are regulated by the Financial Services Compensation Scheme (FSCS)3.
How does the Financial Services Compensation Scheme protect you?
If you have £85,000 or less in a savings account, you are covered for if your bank or building society is unable to honour the withdrawal (i.e. if the provider collapses).
If you have more than £85,000 in only one savings account, you would only be covered up to that amount4.
An intelligent strategy: spread your savings (if they’re over £85,000) over various banks which don’t hold the same licence. That way the Financial Compensation Scheme protects you.
Fixed term savings accounts: mix it up
Fixed rate long term savings accounts often provide a higher rate of interest than easy access or instant savings accounts.
Having the ability to draw money out quickly and easily in economically challenging times (such as present times) may seem prudent. However, there are an alternatives which are more effective at making your money work for you.
- Have 3 – 6 months of salary saved in the event of unforeseen circumstances or an emergency.
- If you are retired, we recommended you hold one to three years’ savings.
- Take advantage and catch the high-interest wave by placing a portion of your savings into a 6-9 month fixed-term savings account (also known as a fixed-rate bond).
- Spread the rest of your savings throughout fixed-term accounts that offer longer terms so that you mix the length of time your savings are locked away for.
- Consider opening fixed rate accounts periodically, so that you have varying time periods. This will help you maximise your return, while still being able to have access to funds at different times.
It’s worth noting that interest rates could rise higher after you have locked your money into a fixed rate term. Your interest rate won’t track the Bank of England interest rates. It will remain at the same rate as when you opened the account. That is why we recommend spreading your savings over different fixed rate accounts, at different times.
A successful scenario
Danny James, Director of Client Service at Lloyd & Whyte, presents a case study of his parents.
“My parents have over £50,000 in deposit accounts with Santander. They received less than 0.5% interest. In a short time, I helped them switch to a one-year fixed rate at 3.5%. This means their savings were accessible after just one year and they are now set to enjoy a much higher return.”
To go back to the car…
Get it out of the garage and turn the engine over. Use it as it’s meant to be used. Take it out for a spin.
Now your savings…
Get them out of one savings account. With some clever juggling you can maximise your money, so that it works for you – like it’s supposed to.
Find out more
For more information on how we can help you get the best out of your savings, contact your Lloyd & Whyte Independent Financial Adviser.
Email: info@lloydwhyte.com
Visit: https://www.lloydwhyte.com/financial-services/investments-savings-advice/
- https://www.bankofengland.co.uk/knowledgebank/what-are-interest-rates
- https://www.yourmoney.com/saving-banking/how-to-get-5-interest-without-tying-up-your-savings-for-years/
- https://www.fscs.org.uk/
- https://www.money.co.uk/guides/which-banks-count-as-one-under-the-financial-services-
Lloyd & Whyte (Financial Services) Ltd are authorised and regulated by the Financial Conduct Authority. Registered in England No. 02092560. Registered Office: Affinity House, Bindon Road, Taunton, Somerset, TA2 6AA. It is important to take professional advice before making any decision relating to your personal finances. Information within this newsletter is based on our current understanding of taxation and can be subject to change in future. It does not provide individual tailored investment advice and is for guidance only. Some rules may vary in different parts of the UK; please ask for details. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get back the full amount you invested.