How to make sure every penny you save is working its hardest

SAVINGS rates are on the up. Yet it’s not time to whoop and holler just yet. While we’ve got the best easy access rates we’ve seen for over a year, they’re still paltry, pitiful, spitworthily low and literally uninteresting. Yet they’re a lot better than most people have right now. So it pays to do five minutes research to ensure every penny you’ve got is earning the maximum.

The place to start is to check what your current savings earn. Even if it was a good account a year ago it can be dismal now. Interest of 0.01 per cent isn’t unheard of – that’s just a quid of interest per £1,000 saved. And before I get onto the top deals I’m going to answer three commonly asked savings questions.

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How do I switch savings? Just withdraw cash from the old account, open the new one, and put it in. Unless you’re moving cash ISAs, then you’ll need to ask the new cash ISA provider to transfer the money out of the old one.

I've not heard of the bank you’re suggesting, is it safe? All accounts I’ve listed have the full UK savings safety guarantee, meaning in the unlikely event they went bust, you're protected up to £85,000/person and institution.

Isn't my money just better under the mattress? No. There's no interest, so inflations eating it up even harder than when saving. And even if you have home insurance, the most it usually covers cash for is £1,000 – in a savings accounts you get £85,000 protection for free.

Now on to the best deals. Rather than the highest rate first, I’m going to start simple. So if you’re not sure at least do the easy routes. Do be warned though, these rates are correct at the time of writing, but they can change, for a daily updated rates see my mse.me/savings guide.

The best bog standard simple easy-access account

Here you add or withdraw cash whenever you want (within reason). The new top payer is bankofcyprus.com at 1.3 per cent AER variable though 0.7 per cent of this is a bonus which ends after a year, while the RBS owned ulsterbank.co.uk is a straight rate. Both are online accounts accessible across the UK.

You may wonder why I haven’t mentioned cash ISAs (a tax-free savings account). Well, since the personal savings allowance launched in April 2016 you’re allowed to earn £1,000 of INTEREST a year without paying tax on it (£500 for higher-rate taxpayers). So the vast majority of people no longer pay tax on savings, and as leedsbuildingsociety.co.uk best paying cash ISA pays just 1.05 per cent, unless you’ve a shed load of savings, stick with the normal savings accounts that pay most.

Earn more if you’re prepared to lock cash away

If you’ve some of your savings that you don’t need access to, then put it in a fixed account to earn a higher rate for a set time. Yet you won’t be able to touch your money during the time. The best one-year fix is from shawbrook.co.uk at 1.9 per cent AER (min £1,000 deposit). The top two-year is utbank.co.uk at 2.05 per cent AER (minimum £500), or the new top three-year account is from pcf.bank at 2.22 per cent AER (minimum £1,000).

You can get cash ISA fixes too, but they pay far less, eg 1.3 per cent for one year.

Earn up to 5 per cent with a regular saver

If you put money aside each month, you can earn higher interest on that with regular savings account, but only on smaller amounts, usually up to £300 a month.

To get the top payers you have to have, or switch to their linked bank account. So if you bank with First Direct, M&S, Nationwide, Santander 123, or HSBC Premier, check if you can get one paying 5 per cent.

If you don’t have one of these accounts, or don’t want to open a new one, then leedsbuildingsociety.co.uk is the top one available to all regular savers, at 2.3 per cent.

Use a high interest bank account savings product

These are bank accounts not savings, but you don’t have to switch to them to do it (you can keep your current bank account if you want) though you will have to meet its terms, which usually involves paying in a set amount each month and having direct debits set up. They work like easy-access savings accounts though. You can get 5 per cent interest on up to £2,500 or 1.5 per cent on £20,000, full listing at mse.me/banksavings#currentaccount

First time buyer saving for a house?

There are two special ISA accounts designed only for those who are first-time buyers; the Help to Buy ISA (H2B ISA) and Lifetime ISA (LISA). Saving in these are no-brainers as you get a 25 per cent bonus added on what you’ve saved, to use towards your first house, so if you put £1,000 in, you get interest and £250 added on top.

The Help to Buy ISA wins for those buying within the next year, or anyone uncertain if they’ll definitely buy a house (as you don’t lose money if you withdraw from it). The LISA allows you to save more in it though and buy a higher value house. For more help and a full contrast see mse.me/LISA.

  • Martin Lewis is the founder and chairman of MoneySavingExpert.com. See moneysavingexpert.com/latesttip.