Savings: smart ways to beat inflation

Close up of British pound coin and currency%VIRTUAL-SkimlinksPromo%Inflation climbed to 1.9% in June, up from 1.5% the previous month, according to the latest figures.

So with many savings accounts still paying well under that - the best easy access account is currently at just 1.35% - how can savers boost returns?

Compare savings accounts: earn up to 6.4%Difficult times
With the Bank of England base rate at just 0.5%, savers have had a tough time of it over recent years.

And now their other enemy, inflation, appears to be on the rise again.

New figures from the Office for National Statistics show that the Consumer Prices Index, which monitors how much prices for a basket of goods such as bread and wine have gone up year on year, jumped to 1.9% in June.

That's a sharp increase on the 1.5% rate reported in May and means savers need to get even savvier if they want the value of the nest eggs to go up rather than down.

Fortunately, standard savings accounts are not the only option for hard-pressed savers keen to boost their returns.

Read more about banking and savings

New ISAs, or NISAs, launched at the beginning of this month, allow you to shelter a massive £15,000 from tax - either in a cash account or by investing in stocks and shares.

Cash NISAs, which are offered by banks and building societies, work in exactly the same way as standard savings accounts.

However, while that interest paid on standard accounts is generally taxed at the basic rate at source, you will not pay any income tax on the interest you earn in a NISA.

And that makes it easier to beat inflation, even if the headline rate on the account is relatively low.

The best easy access cash ISA, or NISA, on the market at the moment is from BM Savings and pays 1.55% (including a 1.05%, 12-month bonus). Halifax is also offering a fixed-rate account paying 1.55% for one year.

10 things your bank doesn't want you to know
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Savings: smart ways to beat inflation
Once you have opened a current account with a bank or other lender, you will get a steady flow of emails, letters (and maybe phone calls) offering you a savings account, loan, mortgage, ISA etc to go with it. But while it may be tempting to have everything in one place, it's better to do the legwork and shop around for the best financial products. You can compare interest rates on loans and savings accounts in the 'best buy' tables in the newspapers, or look online on comparison sites. Remember you can still easily transfer your money between accounts, even if they are not with the same financial institution. 
Whether you want to apply for a new mortgage or refinance an existing one, your bank will probably be very happy to give you an instant quote in the hope that you will go with them. They may not tell you that you can shop around at other lenders. A mortgage broker can give you an overview of the best interest rates on offer, and might be able to cut you an even better deal him/herself. 

Want to cash in your jars of change that are sitting on your shelves at home? Many banks are not very keen on coins. They often only take it from their own customers. You will have to sort it into different denominations and put the coins in the bank's bags in set amounts (for example, £1 for coppers, £5 for silver, etc). Some banks only take a limited number of bags a day, or won't take any at busy times. Others take a different view: HSBC has free coin deposit machines in many larger branches where you pour your jar of coins into the machine and it counts them and automatically credits your account. Barclays, NatWest and RBS also have machines in large branches in city centres.

Bank employees now have a duty to point out that they only advise on the bank's products and don't offer independent financial advice. What they won't tell you is that even the advice they give you about the bank's own products should be treated cautiously. Bank staff are often undertrained, underpaid and overworked. (You could ask for the employee's qualifications before getting advice.) So do your own research and/or find an independent financial adviser.

Nothing is set in stone. Your bank won't tell you this, but sometimes it will waive a fee, for example an overdraft or an ATM fee, depending on the circumstances. You have nothing to lose by asking, if you can argue persuasively why they should waive the fee. Citizens Advice says your bank should treat you sympathetically if you can show financial hardship.

As stated in the previous slide, some things are negotiable – such as interest rates or waiving fees – if you can make a good case for it. In that instance, talking to an employee in person is better than filling in a form online.

If your account is overdrawn and you get paid, your bank could use this money to pay off your overdraft without your permission. However, you have a right to ask them not to do this so you can pay your rent or mortgage first. This is called first right of appropriation. You have to ask your bank in writing, and you'll need to write to them with new instructions every time money gets paid into your account. Make sure you write 'first right of appropriation' in your letter.

If money is mistakenly credited to your account, your bank or building society can recover the money, assuming they do this within a reasonable time. But you may be allowed to keep the money, for example if you didn't realise the bank had made a mistake and spent the money in good faith. You would have to prove that you spent it in such a way that it would be unfair to ask you to pay it back. You can complain to the Financial Ombudsman if you think your lender is being unfair in asking you to repay the money.

If you do have to pay it back, you could try to reach an agreement with your bank to pay it back in instalments without interest being added.

The Financial Ombudsman Service has more advice on what happens when payments have been credited to the wrong account. If you did something wrong - for example, by entering the wrong account number - rather than the bank, the Financial Ombudsman may still uphold your complaint. They consider whether the financial institution made it clear to the consumer that only the bank sort code and account number are used to process the payment, rather than the name of the payee. They will also ask whether the lender should have realised that the consumer had made mistake, and once the problem came to light, did the firm take reasonable steps to try to get the money back from the recipient.

If too much is deducted from your account, your lender may have to refund the full amount of the payment. For example, if the money is taken through a direct debit or credit card payment for a hotel room or car rental. When deciding whether the debit was reasonable, the bank or building society will take into account your previous spending pattern. But the bank doesn't have to refund the payment if you agreed the amount beforehand or were informed of the payment by your lender at least four weeks before.

If you don't have enough money in your account to cover a direct debit payment, your bank may not make the payment. It doesn't have to tell you that the payment hasn't been made, so the onus is on you to keep checking your account. If, on the other hand, the payment goes through, you may be charged for an unauthorised overdraft.


Learn more about tax-free savings with our guide to ISAs

High interest current accounts
It may seem unlikely, but the interest rates paid on some current accounts now far outstrip those available on savings accounts.

You can, for example, earn 5% on balances of between £1 and £2,500 held in the Nationwide FlexDirect account, while the Club Lloyds current account pays a generous 4% on between £4,000 and £5,000.

And if you are looking for a high interest home for a larger amount, the Santander 123 Current Account pays 3% on between £3,000 and £20,000.

Just remember that these accounts come with certain conditions. With Nationwide, for example, you must pay in at least £1,000 a month, while the impressive 5% return falls to 1% after the first 12 months.

Lloyds will charge you £5 a month if you fail to pay in at least £1,500 a month, and Santander has a monthly funding requirement of £500 and a fee of £2 a month.

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