How to get the best return from your savings

9 top tips to get the best return from your savings

Getting a decent return from your savings takes more than putting money in the first account you come across. Choose poorly and you won't come anywhere near to securing the best rate and, if you get complacent, you could even end up with a lower rate than you started with. So, just how can you get the best returns from your savings? We've come up with a few tips to help you out.

1. Decide what you’re looking for

The sensible starting point is to decide what kind of savings account you’re actually looking for. Are you happy to lose access to your money, for example, or do you want to be able to add and withdraw from your pot whenever you wish? Traditionally, the best returns were reserved for those willing to lock their money away, but today that’s not always the case. Easy access accounts now offer comparable – or even higher – rates than fixed bonds, so your decision may depend more on whether you want to avoid the temptation to spend.

Other key considerations will be around budgeting and savings goals. Planning ahead is essential, particularly as we navigate the cost of living crisis, which means knowing where your money is going, what it’s doing – and crucially, how to make the most of it – has never been more important.

Start by making a list of your expenses so you know how much you have available to set aside into a savings pot. Then you can think about your goals for your savings, and from there, can decide what savings account would best help you reach them.

For example, if you have a short-term goal (such as a holiday), you might need an easy access savings account so you can add funds when you wish and withdraw the money when you need. Longer-term goals, such as saving for your first home, could benefit from a fixed rate bond so there’s no temptation to dip into your pot. Remember the importance of an emergency fund too, as well as retirement saving.

2. Look at different types of savings accounts

Once you know what you’re after, you can start searching, making sure to compare the options thoroughly as you go. After all, if you don't shop around, how will you know if you've got the best deal? There are so many different savings accounts available that the time spent researching could pay dividends, because those few extra minutes could make a world of difference to your savings pot.

You may want to consider signing up to a savings platform as well. Platforms give you access to numerous savings accounts in one place, giving you more control over your money as well as added convenience.

Find out more about savings platforms by reading our guide.

3. Check out different savings providers

While securing the best rate will be at the top of your agenda, you’ll want to pay attention to the details of the account as well, such as opening or withdrawal restrictions, so you can be sure you've got an account that suits your needs.

Don't always opt for the big names either – high street banks tend to offer lower rates than their lesser-known alternatives, so make sure to consider these challenger banks when making your selection. They come with the same financial protection as their mainstream counterparts, too.

4. Consider locking your money away

While you'll always need an easy access savings account for that all-important emergency fund, if you're saving up for something specific or have a lump sum you want to grow over the next few years, you could do well to opt for a fixed rate version instead.

Fixed rate accounts lock your money away for a set amount of time. They don’t normally allow further additions and rarely allow access before the end of the term, so you’ll need to be truly committed to take the plunge. But if you're comfortable with making that kind of commitment, it could be a great way to see your balance grow, and you can be certain that your rate won’t change during the term (unlike with easy access accounts, which are variable rate and, as such, can change at any time).

Only consider fixed rate bonds if you are truly comfortable with losing immediate access to your money, and if you’ve got more accessible funds available elsewhere. If you’re still on the fence, look for a fixed rate account that offers earlier access should the need arise – some do, but you’ll typically have to pay an interest penalty for the privilege, though it could be an ideal compromise.

5. Make sure to review your rates regularly

If you’re saving in a fixed rate bond, the only time you’ll need to review your rate is when the bond matures and you’ll need to decide what to do next with your savings. However, if you’re earning a variable rate of interest, you’ll need to be a bit more vigilant. Not only do variable savings rates have the potential to change at any time, but some come with an introductory bonus that will fall away after 12 months, which could see your return drop significantly.

For this reason, you’ll want to review your rate on a regular basis, and at the very least annually, to make sure you’re getting the best returns possible. The beauty of variable rate accounts is that you’re not tied in, so if you’re not getting the rate that you want, you can switch!

Just make sure to check the terms, as there may be an interest penalty if you withdraw your funds early from notice accounts.

6. Maximise your tax efficiency

To be truly confident that you’re getting the best returns possible, you need to make sure the taxman isn’t taking a chunk of your savings. Happily, the launch of the Personal Savings Allowance (PSA) in 2016 makes this a whole lot easier, with savers able to earn up to £1,000 in interest each tax year without having to pay any tax on it. That’s before your annual ISA allowance, too, which is entirely separate from your PSA.

Essentially, as long as you’re not breaching your PSA, you shouldn’t need to worry too much about tax. If you’re earning more than £1,000 a year in interest (or £500 if you’re a higher rate taxpayer), make sure to funnel some of that into an ISA instead – while there is an annual £20,000 limit on what you can put into an ISA, there’s no limit on how much tax-free interest you can earn with these accounts, so the more you save each year, the more you can benefit.

7. High interest current accounts can offer higher rates

Think a traditional savings account is the only option if you want to save your hard-earned cash? Think again! Current accounts can be a viable alternative, with high interest current accounts often paying comparable rates to standard savings accounts. For this reason, they can be used as a kind of easy access account, with savers able to earn a high rate of interest without losing access to their cash.

The only caveat to this is that most high interest current accounts will come with certain restrictions, such as a minimum monthly funding requirement or a limit on how much of the balance will earn interest. But, considering it’s possible to earn up to 5% on a portion of your savings, this type of account could be a valuable addition to your savings portfolio, particularly if you can benefit from other current account perks well. Find out more about using a current account as a savings vehicle to see if it’s an option for you.

8. Regular savings accounts can complement a savings portfolio

Another alternative could be a regular savings account. These accounts typically pay higher interest rates than their traditional counterparts, but there are far more restrictions in terms of how, and when, you can save. You’re generally required to make a set monthly payment which is usually capped: there’ll be a maximum amount you can save each month and during the term, with regular savings accounts typically lasting around 12 months.

Bear in mind that some will penalise you for missed payments and won’t let you access your money before the account matures, so make sure to check the terms and conditions before you apply. That said, regular savings accounts generally pay the highest rates of interest among cash savings accounts, so could be worth considering, particularly for those looking to get into the savings habit.

9. Be daring - if you are ready for some risk

If you're comfortable with an element of risk, it could be time to take things up a notch. Stocks & shares ISAs, for example, have the same tax benefits as their cash-based counterparts but offer the potential for much higher returns, with the drawback that your investment could be at risk if your chosen stocks don't perform well. It's a definite trade-off, but if you've got that kind of risk appetite, it could be a great way to maximise your returns.

Remember, the value of a stocks & shares ISA can go down as well as up, which means you may get back less than you put in. As such, you’ll need to be comfortable with taking an extra level of risk with your money. Remember, too, that your returns are based on the performance of your chosen funds rather than a set interest rate, though this also creates the potential for returns to be far higher than standard interest rates can offer.

Make sure to seek advice if you’re unsure.