Published: 18/01/2010

For the last twelve months savings rates have fallen to record lows as the Government slashed base rate in an attempt to kick start the economy.

Those heady days where fixed rate savings accounts were in some cases paying as much as 7% in are unfortunately now long gone.

So whilst there are still one or two reasonable fixed rate savings deals to be had, these are mostly for products where you have to tie your money up for a four or five year period. With variable rate savings accounts the situation is even more depressing, with many accounts paying a paltry 1% or less.

If you haven’t checked the rate you’re getting on your existing savings for a couple of months, contact your bank or building society now, as you may be shocked to discover how little you are actually receiving. To find a better home for your nest egg, check out the savings search on moneynet.co.uk.

However, whilst returns are low on savings accounts, it makes sense to look at other ways to improve your finances as highlighted below. 

Paying off debt is the biggest money saver

Whilst savings rates have tumbled, borrowing rates on credit cards, personal loans and overdrafts have actually increased over the last year, so the gap between the amount of interest charged on debts compared to interest paid on savings has widened dramatically. Therefore it is seriously worth considering reducing some of your debts as a more effective way of saving money.

Just to highlight this point, if you have an ongoing credit card balance with a rate of say 17.9% APR, paying off a £300 lump sum would save you £53.70 in interest charges over a year. To earn the equivalent on your savings, you would need to invest six times as much i.e. £1800 in the highest paying 1 year bond at 3.65% which would earn you £52.56 net of basic rate tax. 

Paying a little extra each month can bring big rewards

If you haven’t got a lump sum that you can put towards paying off your credit card debt, you can still save a packet simply by paying just a little extra off your credit card statement each month. You’ll be amazed how much difference just an extra £20 per month will make.

Here’s the numbers to prove it. If you have a £1500 balance on your credit card at 17.9% APR, by paying an extra £20 each month on top of the 3% minimum repayment, you will pay your balance off in 4 years rather than over 15 years and you’ll save a staggering £845 in interest charges in the process. 

Another more obvious way to save on credit card interest is to switch your balance to a 0% credit card deal from the likes of Virgin Money where you can get 16 months interest free borrowing as long as you’ve got a good credit record. The good thing about this card is that you can use the balance transfer to repay your overdraft or personal loan, you’re not restricted to paying off other card debts. 

Switch your current account and get a £100 bonus

Transferring your current account to First Direct or  Alliance and Leicester Premier is another way to earn some extra cash; both of these banks are currently offering new customers a one off payment of £100 to switch their cheque account. 

Whilst £100 may not sound that tempting, it’s easy money, with your new bank looking after the transfer process on your behalf. To put it into perspective, if you’re stuck with a savings account paying a mere 1% and you have a balance of £2000, it would take you more than six years to earn £100 in interest (net of basic rate tax). By switching your current account you can bag the £100 ‘golden hello’ for less than an hour’s work.

In these volatile economic times the message is simple, whether you’re saving or borrowing, don’t rest on your laurels and risk losing out financially. Keep an eye the best deals via moneynet.co.uk to make sure you don’t miss out.

Buying a new home – your chance to submit your questions to industry experts

Volatile house prices and a shortage of mortgages mean tough times for everyone in the housing market. Particularly for a first time buyer, the process can be very daunting and stressful. That is why getting specialist, independent advice is vital.

If you are currently in the process of buying a house or looking to get onto the property ladder then join our live webcast on Thursday 28 January at 1pm. So submit your questions for our experts now and come back and join us when we go live.

Congratulations to our competition winners

A big well done to John Harris, Rob Dodson and Mouli Raj who each won an Ipod shuffle in our Christmas newsletter competition.