For those of us trying to save for the future, and to secure our family’s long-term financial health, the opportunities to earn decent returns have all but disappeared. It wasn’t that long ago that you could enjoy rates of over 5 per cent on a standard Cash ISA. These days, the landscape has been absolutely flattened. It was when the Santander 123 account cut its headline rate from 3 per cent to 1.5 per cent at the end of 2016, that the last real beacon of hope was toppled.
Plummeting rates have been difficult to deal with over the last couple of years, but at least a lack of inflation has made things somewhat palatable. But with the weakening pound, that has all begun to change sadly, and it means that, in real terms, our money is effectively whittling away in bank accounts.
But with the world feeling as uncertain as ever, it has never been more important to take the necessary steps to secure our savings. Luckily there are still some ways to maximise your rainy-day fund.
The irony of the Santander 123 account is that, even though their rate has just been slashed, it is still one of the best available! That’s because, in addition to the interest, you also get cashback on bills too. There are also some other alternative providers which may appeal. Among them Nationwide (5% on £2,500 for 12 months), West Brom Building Society (1.05%) and Sainsbury’s (also 1.05%, but for those with over £30,000 to put away).
Finding the best Cash ISA rates is a bit of a paradox given that ‘best’ is a rather flattering term. They used to be very popular among the masses, with the main benefit being guaranteed tax protection. However, courtesy of the new Personal Savings Allowance, tax on normal savings accounts (which is deducted before interest is paid) has become a thing of the past for all but the highest earners.
What it means is that the core purpose for opting for a Cash ISA has been negated, and the fact that rates have tumbled below most headline current accounts means there isn’t a lot of clamour for these products anymore. Nevertheless, for those still inclined to opt for one, the best options of a bad bunch in terms of easy access are Virgin Money (1%), NS&I (also 1%) and the Post Office Online ISA (0.9%).
There are a new range of other ISA types too. One is the Help to Buy ISA, which is relevant to those who classify themselves as prospective first-time buyers. This involves gaining a 25 per cent state-sponsored bonus in addition to the cumulative amount you save. There are maximums for both the amount you can put in each month, and also for the price of the property you purchase. However, the bonus is not to be sneezed at, and, as an added perk, they pay good interest too (2.27% from Barclays, for example).
Another option from April will be the Lifetime ISA. It’s similar to the Help-to-Buy in the sense that you benefit from a state-sponsored bonus to the tune of 25 per cent. Although this is a long-term saving option, available to those between the ages of 18 and 40, with a view to withdrawing from it when turning 60 (there are penalties if you withdraw before this, unless it is to buy a first-time home or to fund the costs of a terminal illness).
An additional choice is the new Innovative Finance ISA. This is offered by peer-to-peer lending platforms. Aside from dabbling in stocks and shares, these are the best ISA rates you’ll find. However, it is important to note that this isn’t the same as savings, and that the money you lend via these platforms is not guaranteed by the Financial Services Compensation Scheme. That said, platforms do mitigate risks by vetting loan applicants strictly, and keeping a reserve fund to cover any arrears and defaults should loans go bad.
There are no silver bullets when it comes to saving, but there are good options and bad ones. It’s important to do your research, and to sometimes look a little bit beyond the normal mainstream. It may feel like a bit of effort, but if it can help to secure your family’s financial future in the long run, then it’s surely worth it.