It's a tough time for savers at the moment with record low interest rates that have persevered for years since the financial crash of 2008. According to Mark Carney, governor of the Bank of England, even when interest rates do rise, they are likely to do so very gradually so as not to risk a housing meltdown.
So if you are in the position of needing to get every last drop of income from your savings, what should you be doing right now? This is what we are going to explore in the following article.
Don't Be Afraid Of Switching
The truth is that many of us simply don't like the idea of switching banks. We think it will be a great deal of hassle and there is the risk of things not working properly and bills or mortgages not being paid on time.
But the truth is that there is now a current account switch guarantee in the UK that prevents any such problems from arising and makes the switch quick and simple.
So the first thing to do is to get over the fear of moving to a new bank and just do it. There are often some great deals around if you look hard enough and many will give new customers a big fat bonus either in a cashback form or by way of higher interest rates for a fixed period.
These days, even some current accounts offer high rates of interest assuming you pay in a certain amount each month and/or have a number of direct debits coming out of your account.
Tax Advantage Of Tax Free Savings
The government allows a certain amount of your savings to go into a tax free account which will soon be called a NISA or New ISA.
In it, an individual will be able to put up to £15,000 per year and any interest they receive will not be taxed. This amount is significantly higher than previously where only half your ISA allowance was allowed to be in the form of cash (with the rest as stocks and shares).
The challenge with ISAs is to weigh up whether the current low rates of interest are worth bearing until rates improve. You see, at the present time, a basic rate taxpayer can get high enough rates with traditional savings accounts to wipe out the advantage ISAs have. Check out this link for a comparison of savings and ISA rates for the different tax bands: http://moneyfacts.co.uk/guides/savings/comparing-cash-isas-to-normal-savings03-02-11/
But this does not mean they are necessarily the way to go. You see, an ISA allowance is cumulative meaning that you can keep adding more each year. But if you decide one year to put your money into a savings account instead, you miss out on being able to put this money into an ISA for the coming years.
So if, in the future, ISA rates overtake regular savings accounts once again, you won't have as much in your ISA to benefit from these higher rates. It must be said, however, that the increased yearly cash limit now makes it easier to move money about whereas before you were only able to save less than £6,000 a year in a cash ISA.
Lend To Your Peers
No, I'm not talking about giving your mates a bit of cash in the hope that they'll pay you back with a bit extra, I'm referencing the relatively new concept of peer-to-peer lending.
By using a site such as Zopa, you can become the lender in a bilateral agreement with another member of the public. This is essentially what you are doing by saving with a bank anyway but by cutting out the middleman, you can achieve much higher rates of return.
While Zopa and other P2P marketplaces are usually best for savings horizons of at least 3 years, there are facilities available to give you fast access to your money should you require it.
Default rates are relatively low and these are taken into consideration when they present their expected returns. You can read our full Zopa review here.
Invest In Renewable Energy
As the world's governments continue to fail to act swiftly on greenhouse gas emissions and the need to move to a more sustainable form of energy production, members of the public are, instead, the ones who are leading the charge.
There are now many ways that the ordinary person on the street can get involved and put some of their money away in a renewable energy investment.
While some of these come in the form of >a href="http://www.energybonds.co.uk/">bonds, others are very long term direct investments into particular projects.
Or you could, of course, invest into a form of micro generation of your own whether that's solar panels on your roof or a small wind turbine (if you have enough space).
Invest In Startup Companies
In the UK, there are now opportunities to invest into an equity share of a very early stage business via online crowdfunding sites. While many such sites only offer “rewards” for your investment, the is a growing number who actually allow you to receive financial remuneration.
One such site, and one of the most trustworthy in the UK, is Crowdcube where you can currently invest in anything from a web-based barrister finding service to a commercial bee-hive company.
Unlike most other options, there is a significant element of risk with this type of investment but you can get very good returns on your savings if you are willing to accept those risks.