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Getting a Fix on Your Savings

With the current economic outlook still looking bleak, concerns over job redundancies and budget cuts; it could not be a more crucial time to look after your savings. Experts recommend that each of us should have savings equivalent to at least three months' salary to provide a buffer in the event of being made redundant or unable to work. It is never too late to start saving and small lifestyle changes can make a big difference.

But now, where to put your savings? Interest rates have hit rock bottom and economists predict that they will stay this way for the next three years. This makes the decision of where to store your money a very important and difficult one.

If you are looking for an account that will provide the most interest then you are best opting for an account offering a high rate. Many of these accounts however require you to lock your money in for a period of time. This isn’t a problem if you can afford to do this but if you are unsure when you will next need this money you may be reluctant to choose this option.

If you have an Individual Savings Account (ISA) make sure you use up your full cash ISA allowance before you start saving elsewhere; as ISA interest cannot be taxed, so putting your money in one of these would maximise your savings benefits. You are entitled to save up around £10,000 in an ISA with half of this being in cash and the other half invested in shares.

If you are feeling brave you could place your money with a peer-to-peer lender. These bonds pay significantly higher rates than comparable bonds offered by high street banks and building societies, but they are of higher risk. Peer-to-peer lenders lend your money out to what are, essentially strangers, and there is the risk that they will not repay your money. Peer-to-peer lenders aren’t regulated by the Financial Services Authority. Therefore you wouldn’t have the safety net of the Financial Services Compensation Scheme to fall back on in the event of the default. Ratesetter is a peer-to-peer lender who offers a one-year fixed-rate bond with a market leading rate of 5%, and a five-year fixed income account paying 8.3%. Ratesetter, unlike other peer-to-peer lenders has a “provision fund” which is designed to cover bad debts.

Economists believe that interest rates will not begin to rise until the end of 2013 at the very earliest. Therefore you may be better placing your money in a longer term bond, which will produce more interest. These longer term bonds will hopefully mature around the time of interest rates rising and you can then move your savings to a safer, shorter term account. 






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