2 September 2009

Losing Interest

If you have looked at the interest rates available for savers lately, then you will know that they are not much to write home about. If it’s any consolation – and I don’t see why it should be – then you are helping the banks and building societies to “rebuild their balance sheets” following the effects of the Credit Crunch.

Whatever that means, it’s costing us dear, and it’s a particular problem for those in retirement who rely on savings for some of their income. That’s because the bills the income is there to pay never seem to go down in quite the same way.

So what can you do? The first thing to say is that you should always keep some money readily available for emergencies, even if that means accepting very low interest rates. How much to keep will depend on your lifestyle – how reliable your income is, and how regular your spending patterns are – but it seems to me that somewhere between a quarter and a third of your annual income is usually about right. With current low interest rates you might feel like erring on the side of less rather than more, though, and keeping just that basic mimimum in a savings account.

If that amount really is going to be readily available, then there’s not much you can do as an alternative to low savings rates. So be prepared to search around a bit to find the “least worst” – there are some well-known websites which will tell you the best interest rates available. Don’t get tied in for long periods, though – you don’t want to be sat with a blown-up boiler (or even with the opportunity of a great holiday), waiting for your savings to become available!

A bigger question is what to do with anything beyond that basic minimum. It is certainly worth working to find the best home for additional money. I’ll be looking at a couple of options, although they require a step up from savings.

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