Getting a return

In March 2009 the Bank of England dropped its base rate of interest to its lowest ever level at 0.5%. The base rate is important to the wider economy because it is the rate at which the Bank of England charges commercial banks for overnight borrowing, accordingly, if the banks have to pay that much extra to the Bank to borrow money, they pass those charges onto the customers.

Over a year later, the base rate is still at that historic low level, and they look set to stay there for at least another six months if not longer. The idea behind lowering the base rate is to make it easier and cheaper to borrow money and therefore to help businesses who will in turn help the economy to recover. As the recovery, such as it is, remains fragile, the interest rate remains low.

Bearing that in mind, getting a good return on any form of saving is challenging at the moment. Banks like Santander offer a wide range of bank accounts and other ways of saving you money, but which is likely to offer the best return?

At the bottom of the pile at the moment is the simple current account, this will be followed by a savings account. Neither of these is likely to earn you more than 1% in interest, in fact, if you find one offering one percent you’re probably onto a good deal there and should snap it up immediately.

The next step up the food chain, so to speak, is the cash ISA. Now ISAs may have a lower basic rate of interest than savings accounts but its worth remembering that you don’t have to pay tax on the interest that you earn with an ISA, therefore, the rate of interest that you get from the cash ISA can be multiplied by 22% (if you’re paying the basic rate of tax) and that’s the amount you’ll actually earn. Accordingly ISAs are a better idea than a savings account with a comparative rate, not least because the amount you have saved in them can accumulate over time giving you more tax free savings.

The best option of the lot is a stocks and shares ISA. Now these types of products do carry an inherent risk with them, they are, after all based on the stock market and we all know how volatile that can be. Nonetheless there are certain forms of investments, like government bonds that are really quite safe and do offer a high rate of return. In fact, at the moment, a good stocks and shares ISA is just about the only way you’re going to beat the rate of inflation when it comes to savings.

Of course, stocks and shares ISAs can put people off because they are more risky, and when you’re saving your money it’s important that you’re confident with where you’re putting it. As a final bit of advice make sure you do a little research before you save to guarantee that you get the best deal possible.