Everyone wants to increase their savings. Yet with most UK savings accounts offering abysmal interest rates at present, this is easier said than done. That said, there definitely are ways to boost your total if you’re willing to use your initiative or to take on a little risk. Today I’m going to show you some ways in which you could earn a higher interest rate than the 1.5% being offered on savings accounts in 2019.
One approach is to take advantage of bank accounts that offer higher interest rates on smaller sums of money.
For example, Tesco Bank’s current account currently pays 3% on savings up to £3,000, as long as you pay in £750 per month and make three direct debits. Each individual can have two of these accounts, meaning that a couple could potentially earn 3% on £12,000 (4 x £3,000), which equates to £360 interest per year.
Other accounts that could be worth a look include the TSB Classic account, which pays 5% on up to £1,500, and the Nationwide FlexDirect which pays 5% fixed for a year on up to £2,500, although both have conditions.
If you don’t need access to your money in the short term, another easy way to pick up a higher interest rate is to invest your cash in a ‘fixed-rate’ savings account for a certain period of time. For example, the Post Office is currently offering a rate of 1.9% on its one-year fixed-term savings account.
While the rates on two-year and five-year products are higher than one-year options, I wouldn’t recommend locking money away for longer than a year, as UK interest rates could rise in the future, meaning that interest rates on savings accounts could improve too.
If you’re keen to earn a higher rate than 3% on your money, consider peer-to-peer (P2P) lending. This is where you lend your money to other people, or businesses, through a P2P platform. Through popular UK platforms such as Zopa, Funding Circle, and Ratesetter it’s not hard to earn rates of 4% or higher. Having said that, it’s important to note that P2P lending is riskier than putting your money in a bank account. Borrowers can struggle with repayments meaning you might not get back all of your money. Furthermore, given that P2P lending is a relatively new industry, we don’t know how it will perform if the economy collapses. So it’s worth proceeding with caution here – it’s probably not wise to put your entire life savings into P2P lending.
Finally, if you’re serious about increasing your savings, consider investing some money in dividend stocks. These are companies that pay shareholders regular cash payments out of their profits several times a year. Right now, there are some fantastic yields on offer from some of the UK’s largest companies, such as 6% from Shell, 6% from HSBC and 8% from British American Tobacco. With these kinds of stocks, it not hard to start building up a passive income stream.
Of course, stocks are riskier than cash and in the short term, share prices can be volatile, meaning you might not get back what you invested. However, research has shown that over the long term, stocks tend to generate returns of around 7%-10% per year on average, which is far higher than the returns from cash savings in the current low-interest-rate environment.
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Edward Sheldon owns shares in Royal Dutch Shell. The Motley Fool UK has recommended HSBC Holdings. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.