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COMMENT
Five Things To Help Savers

By Cliff D'Arcy
February 18, 2005

Hands up everyone who would like to have less money stashed away!

So, I think we've established that we'd all like to have larger sums saved and invested. However, we're not as good at saving as we once were. In fact, the UK savings ratio (the percentage of our disposable income that we save) has halved since 1992, falling from almost 12% to under 6%. It appears that we Brits are spending more in an effort to improve our current standard of living, instead of building a brighter future. Oops!

Note that the savings ratio tends to fall as house prices soar and consumer confidence grows, as it did in the late Eighties and during the latest property boom. However, when house prices stagnate or decline (as they did between 1990 and 1995, and where they appear to be heading at the moment), the savings ratio starts to rise as people rebuild their personal balance sheets.

So, if you'd like to strenghten your savings, perhaps these things would help?

1. You could boost your spare income

If your expenses match or exceed your income, then you can't possibly add to your savings, because you've nothing spare to stash away! Hence, the drive towards higher savings begins by increasing your income or, even easier, slashing your expenses. Read 25 Quick Money-Saving Tips and learn to budget.

2. We could have a tougher Banking Code

The voluntary Banking Code adopted by most UK banks is absurdly lax when it comes to informing savers about interest rate changes and accounts with low rates. Your bank only has to inform you of the interest rates on your accounts once a year, and only has to contact you "within a reasonable period" if it slashes the rates on an account. This simply isn't good enough - and the savers who suffer most at the hands of the banks are the most vulnerable, such as the elderly and disabled.

How many times have you heard about a pensioner who had his/her life savings on deposit, only to discover years down the line that s/he'd been paid the most pitiful returns? One view is that every bank should be forced - by legislation - to write to all of its customers every year, showing savers how much more they could earn by switching from ropey old accounts to the bank's most appropriate Best Buy product. That would put a stop to dormant account syndrome at a stroke!

3. You could find a better account

As Hell will freeze over before the government would do anything to upset the banks, I suggest that you don't wait for fairer treatment for savers. A one-minute online search reveals ten no-notice savings accounts that pay interest of 5%+ AER. With around 99% of savings accounts paying rates lower than these accounts, why bother going elsewhere?

To make life easy for you, we have several of these Best Buys in our Savings centre.

4. You could pay less tax

If you are saving - or plan to save - up to 3,000 a year, then get yourself a cash mini-ISA. These savings accounts pay tax-free interest, usually at attractive rates. Basic-rate taxpayers earn a quarter more interest in cash mini-ISAs than they do in taxed savings accounts that pay the same rates But, as cash mini-ISAs normally pay market-leading rates, you could even double your interest, simply by switching your savings today!

Learn more in our ISA centre.

5. The government could soon match your contributions

The Treasury has been experimenting with ways to help people - particularly those on low incomes - to save more. It is testing the "Saving Gateway" in five areas of England: Tower Hamlets in east London; Gorton in east Manchester; Cumbria; Cambridgeshire; and Hull.

Savers in these areas can deposit up to 25 a month into a special savings account that lasts for eighteen months, with a maximum amount saved (by the account holder) of 375. Although the account pays no interest, savers have their deposits matched pound for pound by the government, which effectively doubles their money on day one.

This is a fantastic account (I'd apply for one today!), which is why it is limited to people of working age on low incomes: families with annual incomes of less than 15,000 and individuals earning less than 11,000, including those on benefits. It remains to be seen how successful this pilot scheme will be, but this approach could benefit millions of families that struggle to save enough for a decent emergency fund or nest egg.

More: Get a better deal in our Savings centre | Five Silly Savings Mistakes.