Most savings accounts are paying very poor rates at the moment, and the main reason for that is the low base rate.
Indeed, many savings accounts are paying less than 1% in interest, which is way behind inflation at 3%.
So what can you do to get a decent return?
1. Lock your money away
One option is to lock your money away for a few years.
One option is to lock your money away for a few years.
The simplest way to do that is to take out a fixed-rate bond. If you go for a five-year bond, you're guaranteed to receive the same interest rate for five years, and the return should be significantly higher than for an instant access account.
However, on the downside, you won't be able to access your money for the five-year term - in fairness, some accounts do allow you to take out the money early, but you'll have to pay a penalty.
Here are the highest-paying fixed-rate bonds for three years or longer:
| ACCOUNT NAME | BOND DURATION | INTEREST RATE | MINIMUM DEPOSIT |
|---|---|---|---|
| BLME Sharia Compliant Premier Deposit account | Five years | 4.6% (anticipated profit rate) | £25,000 |
| State Bank of India Hi Return Fixed Deposit | Five years | 4.5% | £1,000 |
| Secure Trust Bank Fixed Rate Bond (Series 4) | Five years | 4.45% | £1,000 |
| BM Savings five-year fixed rate | Five years | 4.4% | £1 |
| BLME Sharia Compliant Premier Deposit Account | Four years | 4.2% | £25,000 |
| State Bank of India Hi Return Fixed Deposit | Four years | 4.2% | £1,000 |
| Secure Trust Fixed Rate Bond (Series 8) | Four years | 4.1% | £1,000 |
| Halifax Fixed Online Saver | Four years | 4.05% | £500 |
| BM Savings Internet Three-Year Fixed Rate | Three years | 4% | £1 |
| BLME Sharia Compliant Premier Deposit Account | Three years | 4% | £25,000 |
| Halifax Three-Year Fixed Online Saver | Three years | 3.85% | £500 |
You'll notice that some of the highest paying accounts are 'Sharia compliant' accounts from The Bank of London and The Middle East (BLME.) Strictly speaking, these accounts don't pay interest but the 'anticipated profit rate' should give you the same return you'd receive from an equivalent account paying interest.
It's also worth pointing out that the minimum deposit for the BLME accounts is very high at £25,000. The accounts from BM Savings and Halifax may appeal more as they offer minimum deposits of just £1 or £500.
2. Use a Cash ISA
Cash ISAs are fantastic savings vehicles because you don't have to pay any tax on the interest you receive. That tax protection makes it easier to generate an inflation-beating return.
Cash ISAs are fantastic savings vehicles because you don't have to pay any tax on the interest you receive. That tax protection makes it easier to generate an inflation-beating return.
As with conventional savings accounts you could go for an instant access ISA or lock your money away for the longer term.
Currently the highest paying cash ISAs are five-year fixed-rate accounts from Halifax and BM Savings. Both accounts pay 4.25% in interest. As you won't have to pay any tax, your return easily beats inflation at 3%.
Top Cash ISAs
| ACCOUNT NAME | TYPE OF ACCOUNT/DURATION | INTEREST RATE | MINIMUM DEPOSIT |
|---|---|---|---|
| Halifax Five-Year Saver Fixed | Five-year fixed-rate bond | 4.25% | £500 |
| BM Savings Five-Year Fixed Rate ISA | Five-year fixed-rate bond | 4.25% | £500 |
| Santander Two-Year Fixed Rate Major ISA | Two-year fixed-rate bond | 4% | £1 |
| Cheshire Direct Cash ISA (Issue 3) | Instant access cash ISA | 3.35% | £1,000 |
The Cheshire Building Society Direct Cash account is worth highlighting as it pays a terrific rate for an instant access account.
3. Social saving
Social saving is another great way to boost your return. Basically you lend to other individuals or businesses via a social saving website such as Zopa or RateSetter. You could potentially earn as much as 7% or 8% via these sites but the risk is higher as well. That's because there's a chance that the people you're lending to won't be able to repay their debts.
Social saving is another great way to boost your return. Basically you lend to other individuals or businesses via a social saving website such as Zopa or RateSetter. You could potentially earn as much as 7% or 8% via these sites but the risk is higher as well. That's because there's a chance that the people you're lending to won't be able to repay their debts.
4. Corporate bonds - funds or bonds?
If you want to do something a bit different to get a higher yield, you could invest in corporate bonds.
If you want to do something a bit different to get a higher yield, you could invest in corporate bonds.
If you invest in a corporate bond, you're effectively lending to a company. That loan is called a bond and you can then sell that loan (bond) to another investor if you wish. This is done via the stock exchange.
Most large companies issue bonds and many of these bonds offer a good income - as much as 9% in some cases. What's more, the risk is relatively low although it's higher than for a savings account or Cash ISA. That's because large companies do occasionally go bust - Woolworths is a good example.
You can find out more about investing in corporate bonds on the London Stock Exchange website.
You can buy and sell these bonds via online stockbrokers such as Hargreaves Lansdown and The Share Centre.
5. Stocks and shares
That leads on nicely to our final suggestion - investing in stocks and shares. The risk is a lot higher, but the potential return is higher too.
That leads on nicely to our final suggestion - investing in stocks and shares. The risk is a lot higher, but the potential return is higher too.
The simplest way to invest in the stock market is via an Index Tracker ISA. Index tracker funds go up and down in line with the movements of a particular stock market index. So if the FTSE 100 index went up by 10%, you'd expect a FTSE 100 index tracker fund to go up by roughly 10% too (minus charges).
What's more, an Index Tracker ISA will also protect your returns from the taxman.
So if you're worried you can't get a decent return on your cash at the moment, don't give up hope. It's not easy, but it can be done.
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