Seven ways to maximise your savings in 2011

Rachel Wait reveals seven top tips for getting the most out of your savings account in 2012.

2011 hasn’t been the greatest year for savers. After all, savings rates have continued to plummet and putting that little bit of extra cash to one side has becoming increasingly challenging.

However, if you’re determined to make more of an effort to save in 2012, here are some top tips to make sure you maximise your saving potential!

#1 Shop around

The very first thing you should do is shop around for a competitive deal. The easiest way to do this is by using the lovemoney.com savings comparison centre where you can compare a range of savings accounts at a click of a button!

Doing a little research to find a savings account to suit your needs and one that pays a decent rate of interest might take a little time, but it’s well worth it if you want to get a get a good return on your savings.

#2 Watch out for bonuses

Bonuses on savings accounts have become increasingly common over the past couple of years. However, while they might make an account look attractive, you need to keep your wits about you.

Bonus rates temporarily bump up the overall interest rate on the account, making it look highly competitive. However, once the bonus rate has expired, you may find you’re left with an account paying a pitiful rate of interest. And as a result, you’ll need to move your savings elsewhere.

Of course, on the flipside, you’ll at least have some guarantee that the rate of interest you’re earning on your account won’t fall below a certain level. After all, if there’s a 2% bonus on the account for 12 months, you can be reassured that you’ll be earning at least 2% on your savings for the first year. That said, this only works if the bonus is fixed - if it’s variable, I’d steer clear.

Providing you’re aware of all of this, bonuses can prove useful. Just be prepared to jump ship once the bonus rate has expired... which leads nicely onto my next point.

#3 Make a note in your diary

Regardless of whether your savings account has a bonus rate or not, it’s a good idea to regularly check if you’re still earning a decent rate of interest on your savings.

Mark six month intervals in your diary to remind you, and make sure you’ve also made a note of when any bonuses will come to an end.

Then make an effort to shop around again to see whether there’s a more competitive deal to take advantage of. If there is, get switching.

#4 Read the small print

Some savings accounts are riddled with catches, so make sure you read the terms and conditions carefully.

Some easy access savings accounts will actually restrict the number of withdrawals you can make each year, and if you decide to ignore this, you’ll end up paying a penalty, such as a loss of interest. So if getting hold of your cash easily is a priority, you may want to watch out for this.

A few accounts even have a minimum withdrawal limit, such as £100, so make sure you check before signing on the dotted line.

Similarly, some accounts may require you to fund them with a certain amount and if you don’t, the amount of interest you’ll receive on your account will drop dramatically.

#5 Fix the rate

In theory, locking up your money for a year or more in a fixed rate bond should provide you with a better rate of return, so this is another option to consider.

Just bear in mind that if you do opt for a fixed rate bond, you won’t be able to get your hands on your cash for the term of the bond. So you should only choose a fixed rate bond if you’re disciplined and know you won’t need to get access to your money in a hurry.

Personally, I would only opt for a one year or two year bond. Plumping for one that lasts three, four, or even five years may not be a risk worth taking as interest rates are likely to go up over the next year or so. This means if you’ve locked in for several years, you could find yourself stuck with an account that’s no longer competitive.

It’s also worth checking whether tying up your money for a year or more really does give you a better rate of return. You may find that some easy access savings accounts offer an interest rate that’s just as competitive as a fixed rate bond – in which case, it’s not worth locking your money away.

#6 Consider a current account

Interest rates on savings accounts might have deteriorated, but interest rates on certain current accounts are actually looking pretty good. As a result, you may find you’re better off putting your savings in a current account.

The Santander Preferred In-Credit Current Account, for example, offers an interest rate of 5% on balances up to £2,500! That’s significantly better than the majority of savings accounts are paying right now. However, you will have to pay £1,000 into the Santander current account each month to qualify and switch over all your direct debits. It’s also worth bearing in mind that many lovemoney.com readers have been unimpressed with Santander’s customer service.

#7 Tax-free savings

If you really want to maximise your savings in 2011, ensure you make the most of tax-free savings, such as an ISA.

At the moment, you can invest up to £10,680 in ISAs. This can be split between a cash ISA and a stocks and shares ISA. Just bear in mind, you can only invest up to £5,340 in a cash ISA.

You can find out about market-leading ISAs in our ISAs centre.

So if it’s your mission to save more in 2012, follow these tips and you should be well on your way!

Compare ISAs at lovemoney.com