The news may be relentlessly grim when it comes to the cost-of-living crisis, rising bills, volatile investments and plunging currency. But there is one group of people who are benefiting at the moment. Savers.

It seems like an eternity ago, but when the financial crash of 2008 occurred, other than a brief flurry of rising rates, things tanked for savers for the last decade. This is partly because of a desire by both the Government and the Bank of England to keep inflation at a historic low.  Fluctuations in the BoE interest rate can be rather complicated – and despite intentions, the setting of the interest rate does not always do what it’s supposed to do. In (very) simple terms, low rates benefits spending, high rates benefit saving. Of course, people aren’t really spending right now, they are spending more, granted. But that’s because bills are costing more, as are many of the things we buy.

Savers across the land can now start to do something that has been unthinkable for the last few years. Actually make some money on their savings!

Before we take a look at the options, here are my thoughts on why the lack of decent savings rates has led to countless people being conned out of their life savings – and what you need to watch out for.

A decade of fraud and flatlining saving rates

I’ve been deeply concerned about rubbish saving rates for some time. The continuing flat rates of interest on savings have been so poor that many people opted to invest, or search for other ways to make their money work for them. Some options, like Investment ISAs, have considerable benefits. However, all investments contain some elements of risk and many people have contacted me over the past 10 years to tell me that their financial advice was poor, leading them to invest in much more complex forms of investment, at higher risk levels than they appreciated.

Sadly, some of these people have been targeted by fraudsters. There’s been a rise in ‘boiler room’ and other investment scams in recent years. Last year, UK Finance reported that investment fraud to the value of £171.7 million was lost or attempted, up 57%. That’s just the cases we know about, because many people are so mortified by the act of being defrauded, they simply never report the matter.

Boiler room scams work by using high pressure phone sales techniques. A victim is identified and targeted by a pushy sales agent on the telephone, with news of a great investment opportunity. As the calls progress, the approach becomes more hectoring and aggressive. I’ve listed to transcripts of these calls and heard how they wear people down and lure them in. There are other forms of scams too. People are often tricked using similar methods in to ‘land banking’ – investing in strips of land ‘due to be developed’ in foreign countries. Or non-regulated collective investment schemes, which might not be out and out scams, but (as the name says) invest primarily in unregulated components, which means they fall outside of the remit of the Financial Ombudsman if things go wrong.

But by far the widest-ranging of the inadvisable investments has been cryptocurrency. If I had a Bitcoin for every person who’d sworn to me that this was an easy route to making money, I’d have… well, given the volitive nature of any form of cryptocurrency, I’d have been rich one day then poor the next. What I can say with certainty is crypto is not for novice investors or bedroom currency speculators. Things move quick and go wrong cataclysmically and it’s often hard to cash in quickly enough.

So the collapse of decent saving rates has led many people to take risks they would not have considered taking before, with many paying a dear price for doing so. These risks are still out there, so before you rush out to invest, here are some of the savings options now available for better interest rates.

How to find the saving scheme for you

It’s been so long since decent savings rates were around that you’d be forgiven for having forgotten how they work. But have a look at your bank account. You may find that your interest rate has started to creep up already. Other types of account – introduced to lure people in during the fallow savings period – offer cashback on some purchases or bill payments, which again, might be offering you some new savings or returns. So before you go rushing off to find new products, see what your current accounts are offering you.

Savings accounts

The big surprise for anyone looking to open a saving account is the fact that you can do this on your phone or laptop these days – including providing your identification documentation. This makes it easy to sign up, but do take a bit of time to do some research first so you know you are getting the best deal.

Firstly, for the vast majority of people, interest on savings is not taxed, until you hit certain thresholds. So for a basic rate taxpayer you can earn up to £1,000 a year (it’s less if you’re a higher rate taxpayer). That means savings accounts, like Cash ISAs are a good way to make your money work for you.

Savings rates tend to improve the longer you ‘lock in’ your money – in other words, you agree to leaving it untouched for set period. But fabulously, there are some accounts now available that allow you to just give a shorter period of notice before withdrawing the money, while still getting better rates than basic savings accounts.

Some of the best savings’ rates are now hitting 5%, with the ‘notice accounts’ with the shortest timescales for accessing your cash at 2% or more. This is all good, but as always, the devil is in the detail.

Before you sign up, have a think about how likely you are to want to access some or all of the money for emergencies. You might want to save £5,000 in an account with a great rate, but you can’t touch it for years. You could then put £5,000 for emergencies in a seven-day notice account, but still get pretty good interest. Some accounts offer unlimited withdraws, others less than two a year.

It’s also worthwhile bearing in mind that some of the killer rates available on comparison sites are for accounts only available for existing customers of the banks and lenders. The very best rates tend to flatline over a certain limit too, so don’t be fooled in to thinking you can use them for very large sums. Finally, check what rate you’d be paying if you broke the rules and withdrew cash early.

Diversifying

The Financial Services Compensation Scheme (FSCS) is a great organisation that protects the money you have invested in various regulated financial schemes and covers you if the firm goes bust. For banking and savings, you are covered up to £85,000. So if you have more than that in your savings accounts, it makes sense to spread the cash over a number of different, regulated businesses. Do check though – as some banks are effectively part of the same retail banking group.

In the past, foreign banks have offered very attractive rates that have lured British investors, but they haven’t been regulated in the UK so don’t qualify for FSCS protection. This notoriously happened when the Icelandic banking system collapsed leaving many savers high and dry. Many people in Iceland felt that the UK had created this situation, adding to the complexity. Let’s put it this way: when I visited Reykjavik a month later, I spoke with a French accent the whole time.

So make sure the bank is regulated in the UK and you are making the most of your allowances.

Cash ISAs

Like my last few relationships, the humble cash ISA has been a disappointment for over a decade. But they are back and finally delivering.

A Cash ISA is a tax-free way to save money, and you can put up to £20,000 in to each one you have. That’s just one a year mind – but you can buy a new one each year and the interest keeps ticking away. Your new allowance kicks in during the new financial year, and every year there is a frantic race to process the applications before the deadline – so don’t leave it till the last minute!

If you are lucky enough to be in the top 5% of the population in terms of earnings, you might find that the tax treatment I mentioned with savings accounts kicks in making the benefits of ISAs nominal – but that’s clearly not something the majority of savers have to worry about.

If you’ve got a few old ISAs not doing much, you can transfer them, consolidate them and make the money work harder. Watch out for the time it takes to do this though – I’ve had reports of businesses taking much longer than the 15 days they technically have to process to transfer. Some may charge a small fee too.

There are lots of different types of ISA and it’s worthwhile thinking about what you want to do with your money ultimately, when taking one out. A lifetime ISA, for example, gives you a 25% bonus on the money you put in the ISA if you use it to put towards purchasing your first home. Once you are over 39 though, you can’t take one out.

Finally, ISAs are usually fixed or variable rate, just like many other financial products. So have a think whether you want to take a punt on rates going up (chose variable) or staying put/remaining volatile (fixed). If we’ve learned one thing this year, it’s that the value of everything, from food to bills and currency, can shift up and down dramatically in a short space of time.

Featured in Times Money Mentor – Martyn James

https://www.thetimes.co.uk/money-mentor/article/savings-rates-up-best-for-me/

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