How to transform your savings strategy
Wrong. There are some great deals around if we take the time to look. So how do we change our savings strategy from sorry to savvy?
If you've not checked the rate on your savings recently, chances are your money could be languishing in an account paying as little as 0.50%. Too many ISA savers are earning next to nothing on their savings, and this is not because there are no good rates out there, explains Julie Smith, savings analyst at Fair Investment Company.
"Attractive introductory rates pull savers in, but many either don't realise or don't remember that after a fixed time, these introductory rates come to an end and revert to earning little or no interest.
"These 'sorry savers' are really losing out, because they leave their money in poor paying accounts just because an introductory offer was good, or because they simply don't check their rate and have no idea it is no longer as competitive as they thought."
To make your money work hard it's important to be proactive and there's two ways to do this with your ISA and other savings accounts. explains Smith: "[There are] those who are constantly switching accounts to make sure they always have the best deal available, and those who take their time to find a longer term deal that suits them. They are very different attitudes to saving, but both are savvy."
Consider your attitude to savings and whether are happy to regularly shop around, or prefer to only do it occasionally. If you have the time and inclination to keep up to date with the market, comparing best buy tables will help you keep aware of the best deals on the market by 'chasing the rate'.
Play 'chase the rate'
"As with any financial product, car insurance, credit cards, utilities, being rate smart can really pay off," explains Smith. "If you are constantly checking your deal, and switching to something better if it becomes uncompetitive, not only are you getting a better rate for yourself, but it forces providers to compete for your business, which ultimately will result in better deals.
"Generally, the longer you are prepared to tie your money up for, the higher the rate you will receive. However you need to consider that the base rate may go up during the fixed term period and this could mean that your once market leading rate is no longer competitive. Many people prefer to keep their options open by choosing a shorter term or variable rate, either because they don't want or can't afford to tie their money up for a fixed period of time.
Understand the terms
If you're going to play the 'chase the rate' game, it's crucial to understand the terms and conditions of each deal. Ensure to keep track of when the introductory offer ends and if there are any penalties for transferring out within a certain time period. Look around for new rates well before introductory bonus rate ends, and be aware that not all ISA accounts accept transfers in from ISA savings made in previous tax years.
Smith highlights one of the best rates around at the moment is the Halifax ISA Direct Reward which accepts transfers in from previous years' ISAs, and currently pays 3.00% AER (variable) for the first 12 months, reverting to the base rate after the introductory period.
The account also has the benefit of Halifax's 'ISA Promise,' which offers to pay interest from day one of receiving your transfer application form rather than waiting for your existing ISA provider to complete the transfer.
If the idea of constantly checking for the best rates sounds like far too much hard work, you can still secure competitive deals by looking for providers offering consistent rates.
"Some ISAs may not be at the top of the table but do have the benefit of offering consistently competitive rates though with the base rate so low at the moment, consistently good variable rates may be hard to find, As long as you are happy to tie your money up, a good solution would be a fixed term ISA as you don't need to worry about the ISA rate changing until the end of the term," adds Smith.
If you're able to tie your cash up for a long period, she suggests the RBS 3 Year Fixed Rate Cash ISA paying 3.70% AER. It enables transfers from previous years' ISAs, yet you won't be able to access your money during the term and may be hit with charges if you close the account early.
Long-term fixed rate deals do have their downsides - the main one being that you won't benefit from any potential increase to the base rate during your fixed term, as you would with a variable rate.