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MONEY COMMENT
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We keep being told that we're not saving enough for our future - and there's no doubt that this is true. However, one of our biggest problems is apathy. Even if we are saving, we're not necessarily getting top rates of interest, if only because we can't be bothered to shop around on a regular basis. But it's important that we do. Here's why: 1. The miracle of compound returns You don't need to be a brain surgeon to realise that the more you save and the longer you save, the more you'll end up with. But even small differences in interest rates matter a great deal over the long term, particularly with rates as low as they are currently. Let's say you save £100 a month for the next twenty years in a simple savings account. An interest rate of 2% would give you £29,472 at the end of the period. Find someone who'll pay 4% on your savings and your pot will be worth £36,503 - over £7,000 more. 2. Inflation Inflation is running at about 2.5% at the moment, although the Government is now using a new method of measuring it, which reduces the rate by about 1%. Either way, rising prices mean that the value of your money is automatically being eroded as time goes by. This means that you need a return on your savings (after tax) that at least equals the inflation rate, in order to ensure that your savings maintain their 'real' value. 3. Tax Whatever the return you're getting, you're very likely going to be taxed on the interest you earn. Most of us lose a fifth of our interest (20%) to the taxman; for higher-rate taxpayers, this doubles to 40%. The easiest way to avoid lining the taxman's pockets is to save inside a cash mini-ISA. Unfortunately, you can only save £3,000 a year - and this limit falls to £1,000 in two years' time. Another option is to offset your savings against your mortgage, which means that you pay no tax on the interest you've saved and you effectively earn interest at your mortgage rate. With interest rates as low as they are, we're having a hard time trying to make any money on our savings at present. So, if you're wondering what your New Year's resolution should be... More: Visit our Savings, Cash Mini-ISA and Offset Mortgage centres.