Inflation might be down, but savings rates are still terrible – younger savers need a different approach if they are to achieve their goals.
For younger people, traditional savings accounts are a great way to lose your money.
Not that you’ll hear that from a bank.
Savings, we’re told, are the best route to a holiday, a house, or being able to eat smashed avocadoes every meal for the rest of your life (no judgement here).
The problem is such savings accounts are useless.
Inflation eats your savings
Generally speaking, if your money isn’t growing, it’s shrinking.
That’s because inflation – effectively the rising cost of living -means your money is worth 2.5% less every year, according to the latest official figures.
If your savings account doesn’t pay out at least that much your money is, therefore, shrinking every year.
The top instant access account on the market right now, by RCI Bank, pays just 1.3%.
Longer-term savings products aren't much better. In fact, you’d have to lock your money away until 2023 to beat inflation – and there are plenty of reasons to be wary of doing so.
Most likely, your savings are losing value as you read this.
Even ignoring inflation, the rates on traditional savings accounts are terrible.
If you want to understand just how bad a 1.3% return is, think of it as real money and real purchases.
If you saved £1,000 in this account, you’d earn a princely £1.08 a month, or £13 after a year.
£1,000 is enough for a week’s all-inclusive holiday in the Caribbean; £13 might stretch to three pints in a grimy London pub.
You might wonder why you’d bother saving at all.
You can do better
Don’t jump on Skyscanner and blow your savings just yet, because it’s possible to beat inflation and make a return worth caring about without risking it on the stock market.
The solution is current accounts.
If you’ve got a regular income and a good credit rating, the banks will be lining up your business and will pay you for the privilege.
They do this in three ways:
Switching bonuses – Halifax will pay you £75 cash and M&S up to £185 in vouchers, just for switching your current account and two direct debits to them (such as a mobile phone contract and gym membership).
Interest rates – Nationwide will pay you 5% interest on balances up to £2,500 for the first 12 months. You could earn up to £127 this way and beat inflation.
Cashback – TSB will pay you £10 a month for using your debit card 20 times and having two direct debits.
Whichever approach you take, you’d earn a much better return than £13.
Regular savers can help even more
Aside from the juicy bribes to join, some current accounts will give you access to the most generous savings rates around.
That’s because they offer linked regular savings accounts with inflation-busting rates.
For example, the M&S Money Current Account's linked regular saver account pays 5% interest, as do a handful of others.
If you don't happen to have one of the above, you can still get an inflation-beating on a regular saver that's open to everyone.
Remember that you need to save a set amount every month (usually between £25 and £300) and you can’t withdraw it for 12 months, so make sure you’re only saving what you can afford.
These regular savings can earn you another £100 – in addition to the bonuses described above.
Easier than ever
All the accounts listed here can be applied for easily online.
You need a job, a computer and an address. You’ll also need your National Insurance Number and an existing current account to switch from.
Banks will transfer your money and savings from the old current account to the new; all you need to do is update any recurring payments (those that aren't direct debits or standing orders) – such as for Amazon or Netflix.
Move your money now and you’re moving closer to that holiday/house/food addiction, rather than further away.
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