In Depth

How to earn up to 8.7% on your savings

Savers should seek to move under-performing funds - and should look beyond traditional cash Isas

The past few years have been appalling for savers with pitiful interest rates offered on standard savings accounts. Now the uncertainty over Brexit has led to many experts saying the Bank of England won’t raise savings rates until 2020 at the earliest, according to The Telegraph - and the next move could even be lower.

Last week the Financial Conduct Authority named and shamed 32 banks and building societies that are paying customers as little as 0.1 per cent interest on their savings. This is often on accounts that offered a competitive headline rate, but after a period of time the rate is cut to next to nothing.

“Savers who once put their cash in easy-access or cash Isa accounts may think they are leaving their cash to build up over time by prudently not spending it, but in fact are seeing its value eroded thanks to pitiful interest rates,” says Lee Boyce on Thisismoney.co.uk.

There are a lot of accounts out there that are paying you virtually no interest at all, but that doesn’t mean you have to settle for meagre returns on your savings. There are a number of ways you can vastly increase your interest rate.

The first thing to do is check all your savings accounts and find out exactly what interest rate you are getting and if there is any penalty for moving your cash.

If you are free to move it there are a number of places you may want to move it to.

Anyone with an Isa that is paying a poor rate should look at transferring to a new Isa. If you want a fixed rate then the best on offer is two per cent over five years from Nationwide. The best rate on an easy-access Isa is 1.3 per cent from Coventry.

However, you can do a lot better than that in an Isa if you are prepared to take a little risk. You could move your money into a stocks and shares Isa and invest in shares, bonds, or funds.

Alternatively, you could transfer some of your Isa savings into an Innovative Finance ISA. These allow you to invest your money into peer-to-peer lending, which offers far higher interest rates. There is more risk here, your money is being lent to individuals who could fail to repay, but as yet no-one in the UK has lost money in peer-to-peer and it has been running for over a decade.

Also, your money isn’t covered by the Financial Services Compensation Scheme, so if the peer-to-peer lender went bust you could lose your cash. Crowd2Fund is currently offering up to 8.7 per cent a year on its IF Isa.

Another option is to abandon traditional savings accounts and put your money in a current account instead. At present the returns on current accounts are far higher than offered on savings accounts. Santander’s 123 Account pays up to three per cent interest on balances up to £20,000. Nationwide and TSB pay five per cent interest on balances up to £2,500 and £2,000 respectively.

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