Savings are particularly difficult to deal with at the moment. Low interest rates mean that savings accounts are offering particularly small incentives for savers, and even the most trusted brand name banks have proven unstable recently, making it difficult to trust that your savings are even well-protected.
What, then, should be done with your personal savings? Or should you not be saving at all?
Kevin Mountford, of the financial advisor website moneysupermarket, predicts that Banks will actually be offering ’some good deals’ for savers in 2010. Mountford said ‘Clearly now, banks, building societies etc are desperate for retail inflow, so I think that we will see a fair amount of competition, albeit the back drop is going to be a fairly flat bank base rate environment.’
His advice, echoing that of many others, is to keep a close eye on rates that are being offered both for your existing savings and for competitors. The competitive climate should result in frequent rate changes, so it should pay to keep your eyes open for the best deals as soon as they appear. This can even mean reading some of those mail-outs ‘to the homeowner’ which you probably discard without opening; sometimes they can contain some valuable information.
On the other hand, banks will probably be offering deals with attractive opening deals, but many of these will mature into lower rates after a set period. It is always essential to read the small print of any new account you open.
Furthermore, learning lessons from the collapse of banks like Northern Rock, always check terms and conditions concerning the security of your savings. Peter McGahan, MD of Worldwide Financial Planning advises that ‘what you are looking really for are well capitalised banks that will protect your money.’ In fact, one of the most effective financial security measures is actually to spread your savings around, ensuring that no one incident can affect all of your savings.
There are other options too besides savings accounts which could work well for your financial capital at the moment.
If you have outstanding debts, including mortgages, loans and credit cards, this could be a great time to consider paying them off with any savings you have. If your debts are costing you more than your savings are bringing in, it could certainly be more financially viable to transfer the capital across. Unfortunately, some terms and conditions of loans carry early repayment penalties, which may well have to be factored in to your plans.
Another option that could be particularly useful for your savings this year is ISAs. Your allowance for ISAs increases this year, and this can be a great place to put your savings. In these accounts, interest is paid tax free, and so should often be your first port of call. Andrew Hagger from moneynet.co.uk advises that you should ‘Make the most of your tax-free benefits first, and then look to other easy-access savings accounts’.
Unfortunately, 2010 still won’t be the best of years for savers, but there are still many options available to ensure that you money is in the best possible place. The key is to be flexible and ready to move your savings to wherever the best deal is, a wise idea to ensure this is to take out a home insurance policy.