Beat low interest rates: 3 tips to make the most of your savings

By RICHARD DYSON, FINANCIAL MAIL ON SUNDAY

Updated: 05:50 EST, 14 January 2013

Savings rates are in free fall at the moment with no sign of respite. We look at what you can do about it.

1. Beware tying up cash for long while rates are so low

Best-buy tables are now full of accounts paying two per cent, while inflation is three per cent. Even the best five-year deposit deal pays just 3.9 per cent.

One answer could be to tie up a portion of the savings pot in a three-year account (Virgin is paying 2.8 per cent) and then take greater risk with the remainder, perhaps by investing in a low-cost, straightforward stock market fund focused on earning dividends.

Higher returns: With saving rates in free fall, stock market funds can be an answer - but the price is greater risk

These can yield four or five per cent, although the value of your capital will fluctuate. This strategy provides higher returns with some flexibility, though the price is greater risk.

2. Treasure the perks you have already

Top cash Isa rates are higher than ordinary savings rates, so utilise your annual allowance of £5,640. If you need to withdraw savings, ensure your Isa money is last to be used.

If you are lucky enough to hold National Savings Index-Linked Savings Certificates (no longer on sale), cherish them, as they promise to deliver tax-free, inflation-beating returns in perpetuity.

Computer programmer John Golding owns a number of ‘linkers’. ‘The first thing I did with spare cash, early on, was to buy these certificates,’ he says.

‘It was money I needn’t touch and didn’t need to worry about.’

Although NS&I no longer sells these investments, it allows existing owners like John, 42, from near Loughborough, Leicestershire, to roll over maturing certificates into new accounts, currently paying inflation (RPI) plus 0.25 per cent.

This makes an attractive return, especially for higher-rate taxpayers.

‘I want low-risk and simplicity from savings,’ he says. ‘My pension, which I don’t expect to need for another 30 years, is where I take greater risk.’

3. Use technology to chase the top rates

The internet makes it easier for savers to track top savings rates and switch their money. Our sister website Thisismoney lists updated best-buy tables. Other sites, such as Savingschampion, will send alerts when your accounts mature, or when bonus rates disappear.