Is Your Savings Account Working Hard Enough?
Many people have held accounts at the same bank for years or decades, typically holding both a current account for their day to day banking, and a deposit or savings account where extra funds can be placed to earn money in interest.
Until fairly recently, the amount of interest paid on both types of account was pitifully low, with current accounts often either paying no interest at all or a nominal amount of 0.2% or so.
Inflation and Tax
Even branch-based deposit accounts rarely paid interest above around 3% or so. At this level, it could well be that you're barely treading water or even losing money in real terms, when you take into account the fact that inflation is at more or less the same level depending on which measure you use,
Also, most people will have to pay tax on interest earnings, and this will further eat into the effective value of your interest, especially for those paying the higher rate of tax at 40%.
Direct Banking
It's clear then that accounts paying interest at 3% or so are pretty much a waste of time in terms of being lucrative investments. Luckily, the advent of direct banking by phone and online has greatly increased the rates available to savers.
It's not uncommon to see banks offering 5% or even more, with some of the best savings accounts even hitting 6% in recent months, although with the lowering of base rates by the Bank of England this is now rarer and may not last.
Make Your Money Work For You, Not Your Bank
Whatever the rate you secure in today's volatile market, you owe it to yourself to make your money work harder than simply leaving it sitting in an under-performing savings account which is only of benefit to the banks themselves.
