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Eight tricks to help you beat the austerity drought

Finally, savers can earn up to 5 percent interest – many times more than at the beginning of the year. But you have to be smart, not rely on high street banks and use tricks to maximize the interest received.

Some savings are improving, but interest rates aren’t rising across the board. As the gap between the best and worst interest rates widens, savers need to be on their guard. Here are eight tricks that will help:

1) Set up recurring payments

Some of the best interest rates are offered on regular savings accounts designed to encourage users to set aside a regular sum each month.

Staying in Flow: As the gap between the best and worst interest rates widens, savers need to be on their guard

However, these accounts usually have a maximum limit on how much you can deposit in a month, between £50 and £300.

There is a useful trick that even savers with nest eggs can benefit from. You need two savings accounts. Choose a competitive savings account with easy access, as well as a top-paying regular savings account.

Then you have to remind yourself to make regular monthly payments from the credit account to the regular savings account in the amount of the maximum allowable monthly amount.

For example, you could set up a recurring payment from a Chase Bank Easy Access Best Buy account that pays 1.5 percent to the Saffron Building Society’s top paying regular savings account that pays 2 percent.

You can then transfer up to £50 a month from Chase into the regular Saffron savings account, which adds up to £1.62 in additional interest a year.

While not by much, some providers are more generous if you use their services on both accounts. For example, if you already have a First Direct savings account, you can open a regular savings account and earn 3.5% interest on up to £300 for a year, paid each month.

Existing Cambridge Building Society members can earn 5 per cent on deposits of up to £250 a month into their regular savings account. You must have been a Cambridge savings or mortgage customer for three years to qualify for this offer.

> Must-have link: These are Money’s independent best-buy savings charts

2) Use banking on your smartphone

Some of the best plans are only available if you’re willing to look beyond household names and manage your account on a smartphone. The best instant access plan available is 1.5 percent from Chase Bank and is app-based.

Other top rates available for app-based accounts include 1.25 percent from Atom Bank and 1.2 percent from Zopa. In contrast, one of the best rates offered by a big name is 0.35 percent for Nationwide’s Flex Instant Saver.

3) Use checking accounts to save…

Some checking accounts pay better interest rates than savings accounts. For example, Nationwide’s FlexDirect account pays two percent on balances up to £1,500 for the first year. Virgin Money pays 2.02 per cent on balances up to £1,000 in its M Plus current account.

But Sarah Coles, personal finance analyst at brokerage Hargreaves Lansdown, warns: “Our research shows that one in five people who have savings in a checking account have accidentally eaten up that money.”

4) …but make sure you switch to the best

If you change your checking account, you can earn cash rewards. Andrew Hagger of consumer website Money Comms says: “Banks are eager to attract new checking account customers and many offer bribes to entice you to switch.”

For example, First Direct is offering new customers £150. Nationwide is offering £125 to switch to its current account.

If you switch with the checking account switch guarantee, your new bank will convert all payments and transfer the balance.

> Essential reading: Our pick of the best bank accounts for switching

5) Earn more by locking away your money

The highest-paying savings accounts often require you to lock away money for months – if not years. For example, Al Rayan Bank is paying 2.26 per cent on its 12-month bond despite having a minimum opening balance of £5,000.

You can get up to 2.8 percent on a five-year fixed rate bond at Shawbrook Bank.

Proceed with caution before putting money away for a long period of time. As interest rates rise, fixed rates are likely to improve going forward.

THE BEST FIXED INTEREST ACCOUNTS
Type of account (minimum investment) 0% tax 20% tax 40% tax
A YEAR
Al Rayan Bank (£5,000+) 2.26 1.77 1.33
Safe trust (£1,000+) 2.26 1.77 1.33
investec (£5,000) 2.25 1.80 1.35
2 YEARS
Oxbury Bank (£1,000+) 2.60 2.08 1.56
Safe trust (£1,000+) 2.60 2.08 1.56
Al Rayan Bank (£5,000+) 2.57 2.06 1.54

Those looking for more flexibility could also consider the Zopa Smart Saver account. This allows you to earn different rates within an account based on how much advance notice you need before you are given access to a different portion of your money.

You get a competitive 1.2% on your instant credit, then Zopa offers rates of up to 1.45% on savings you’re happy to lock in for up to 95 days.

> Increase your rates and manage your money in one place with a savings platform

6) Controversial… but maybe avoiding Isas

Many savers don’t put their money in a savings account but in a cash Isa because the interest earned is tax-free.

But the best savings accounts usually offer better interest rates than cash Isa. The top rates for a floating rate Isa cash is 1 percent, as offered by a Nationwide annual interest payment contract.

With a regular savings account, you miss out on the tax-free packaging, but most people rarely pay taxes on it anyway.

This is because they have a personal savings allowance, meaning a base rate taxpayer can earn £1,000 in interest a year before paying tax.

The personal savings allowance drops to £500 for higher-rate taxpayers and disappears for top-rate payers.

7) Seek a boost from the government

If you’re low-income, you may be eligible for a government savings bonus of 50p for every £1 saved over four years.

The Help You Save program is open to people who are eligible for a labor tax credit or receive Universal Credit.

You can deposit between £1 and £50 into a qualifying account each month to receive the bonus.

Go to www.gov.uk/get-help-savings-low-income for details.

8) Don’t save too much cash

An emergency fund is invaluable in an emergency. However, if you have savings on top of that, you might be better off investing in stocks and shares, as they tend to outperform savings over the long term.

The value of investments will go up and down – although you can mitigate risk with safer funds.

But the value of savings is guaranteed to fall in real terms this year as there are no savings rates close to inflation.

Even if your savings earn 5 percent interest, the rising cost of living means you’ll be buying less in stores by the end of the year.

> The best and cheapest stocks and shares Isas and DIY investment platforms

THESE ARE THE FIVE BEST MONEY SAVINGS

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Eight tricks to help you beat the austerity drought

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