Savers are losing billions of pounds of year because their money is sitting in a ‘zombie’ account earning little or no interest.
Offshore savings rates for expats have plummeted over recent years and many are in the red once inflation and tax are deducted from the gross rate.
Despite the miserable interest rates paid by zombie accounts that are closed to new business or outside introductory deals, a poll by consumer group Which? in the UK reported that 35% of savers don’t move their cash to another account because they can’t see they would earn any extra income.
Here are some tips for savers looking for better rates:
Watch interest rates and deadlines
Savings accounts work by banks and building societies attracting enough cash to hit their profit target than the accounts are closed or interest rates slashed.
Banks and building societies should tell savers about these changes, but you can easily miss the notice which can just be a few lines on a web site, a notice in the branch or an advert in a newspaper.
Ignore headline rates and do your sums
You need the latest inflation rate for where you live and the rate you pay tax on savings to do this.
The sums are simple. The current UK inflation rate released this week is 1.8% and the tax rate on savings is 20% for basic rate taxpayers and 40% for higher rate taxpayers.
The Saffron Building Society is offering a 12-month bond paying gross interest of 4%.
The net rate is 4% less tax at 20% – reducing the rate to 3.8% – less inflation at 1.8%, taking the rate down to 2%.
So although the headline deal is 4%, your spending power is just £20 per £1,000 invested as a basic rate taxpayer. That’s just
Loyalty doesn’t pay
Keep an eye on when higher introductory rates expire and look for a better deal and shift your money. Loyalty earns you nothing.
Banks and building societies open new accounts regularly. You can find these deals on money comparison sites.
Hedge your bets
Different types of accounts pay different interest rates. The rule of thumb is the longer you lock your money away with a lender, the better the rate. If you don’t need the cash for day-to-day spending, look at a fixed rate account or bond.
If you need some rainy day cash, look for a notice account, although you may have to wait up to 90 days to get your hands on your cash.
Most smart investors moved their money out of CD’s and Savings accounts years ago when interest rates fell below 4%. At the time real estate prices were at historic lows and people were able to gobble up rental property at reduced prices. Housing prices in most areas have now stabilized and rents have increased.
As a retiree you have to be vigilant to safeguard and ensure your money is always working for you. Most retiree’s rarely touch their capital and live solely on gains made from investments.
Those of us that chose to weather the storm of the stock crisis are now seeing record gains in our portfolio’s and experienced nothing more than a bump in the road.
We can only hope that eventually the worlds central banks will stop manipulating currencies and interest rates so we can once again rely on a 5% + return on our savings. Personally I prefer to have 25% of my assets parked in an interest bearing savings account so its easily accessible for emergencies.