Sweat your savings – to leave you £5,830 better off
- By fixing £30,000 over five years in the most competitive account, you will be £5,830 better off*. This is better than leaving it in the average branch-based easy access account with a high street giant.
- By fixing £30,000 over five years in the most competitive account, you are £1,212 better off. This choice is better than leaving it in the most competitive easy access account. Easy access now pays more than a long-term fix.**
- A third of us don’t know how much interest we earn on our savings (32%).
- A third of people hold a savings account with the same bank as their current account (34%).
- Over a quarter have never switched their savings for a better rate (27%).
Percentage figures from a survey of 2,000 people by Opinium for HL in October 2023
Sarah Coles, Head of Personal Finance, Hargreaves Lansdown:
“Saving is the ‘going to the gym’ of the financial world. There’s a vast gulf between what we should be doing and what we get around to. We know we should be switching for the best possible deal, but plenty of savers leave cash languishing in a high street easy-access savings account. We also know we should fix portions of our savings for a better return where possible, but we often leave it in easy access just in case.
Sweating our cash more effectively will leave us thousands of pounds better off. This approach is even more important in an environment of falling rates. Moving £30,000 from the average branch-based easy access account with a high street giant greatly helps you. Switching to the best account on the market will leave you £4,618 better off over the next five years. Fixing it for five years at the best possible rate leave you £5,830 better off.
Fortunately, there are steps you can take to make the most of your money. You do not need to make keeping on top of your savings a major part of your life in 2024.
The five-step savings workout
1. Take stock of your savings.
You need to know how much you have, where it is, and what interest you’re earning on it.
2. Work out what your savings are for.
Don’t think of it as one big lump sum. Break it down according to when you need the money. Then, you can build a savings portfolio. Fix each chunk for the period that makes the most sense for you.
Your emergency account:
When you’re working age, you need cash to cover 3-6 months’ worth of essential spending. When you have retired, you should be capable of covering 1-3 years’ worth. This needs to be in an easy-access savings account so you can quickly get your hands on it.
Savings for specific things you will need at specific times:
Lock up each chunk of cash for the period that makes the most sense. So, for example, any cash you need in 1-2 years’ time can be fixed for a year. And any cash you need in 2-3 years’ time can be fixed for two years. If you don’t have specific dates when you need the money, choose a range of fixes. This way, some cash is available each year to be spent. Alternatively, it can be tied up again for longer.
The money you’ll need further into the future.
If you’re putting money away for 5-10 years or more, you should consider investing some of it. This can help you make the most of your money.
3. Shop around for the best possible interest rate over these periods.
You can use a comparison site to track competitive deals and sweat your savings as hard as possible. You must set a diary reminder for when these deals expire. This will remind you to move them. This helps avoid them rolling over into something less competitive.
4. Be honest with yourself.
Some people can keep track of a portfolio of accounts with different banks. They have the energy to shop around and open new accounts when they expire. Other people start with good intentions but get overwhelmed. If there’s a chance that’s you, consider consolidating your savings onto a savings platform. This makes it easier to keep an eye on everything in one place. It also lets you switch more easily.
5. Don’t get sidetracked by the fact that you’ll get a lower interest rate when fixing for longer.
You are tempted to put it all into a one-year account because rates are higher. If the markets are correct about future interest rates, fix for a longer term. You should do this if you don’t need a chunk of it for five years. You’re likely to be better off this way.
Mark Hicks, Head of Active Savings, Hargreaves Lansdown:
“The spread between easy access savings rates and fixed rate savings has narrowed, which may look on the face of it as though you’re not missing much by leaving everything in easy access savings.
The only reason why spreads have narrowed is the market’s belief that rates are on their way down. This belief will push easy access and new fixed rates lower over time. If the markets are right, you are better off fixing tranches of your savings right now. Choose the periods that make sense for you. This way, you make the most of every penny. If you use a savings platform, you can keep an eye on everything in one place. It is easier to switch when fixed periods end.”
*Return in the average easy-access branch-based savings account
Current rate 1.69%
Based on Barclays, Lloyds, HSBC, Natwest, Nationwide, Santander, Halifax, Bank of Scotland, Royal Bank of Scotland, TSB (8 January 2024)
Assumptions (based on the yield curve)
- 1 year this will be 1.2%
- 2 years 1%
- 3 years 1%
- 4 years 1%
Return in five years: £31,818
Fixing it all for five years in the most competitive account (4.55%): £37,648
Difference: £5,830
** Holding £30,000 in easy access for five years
Based on the assumptions
Easy access today 5.22%
- 1 year 3.75%
- 2 years 3.50%
- 3 years 3.50%
- 4 years 3.50%
Return in five years: £36,436.
