The 10 things every saver should do to make the most of rising interest rates

A finance expert has revealed the 10 things every saver should consider doing to make the most of rising interest rates.

With the Bank of England regularly increasing the base rate, which now sits at 5.25 per cent, interest rates are currently the highest they have been since Feb 2008.

And while this is bad news for borrowers, especially those with a mortgage, there are steps all savers can take to make their money work harder and help offset extra costs.

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However, a survey commissioned by Moneybox found many are missing opportunities to maximise the value of their hard-earned savings, despite 79 per cent considering themselves to be confident savers.

Brian Byrnes, head of personal finance for the savings app, is now urging all savers to make the most of all available opportunities to boost their savings and grow their money overtime.

He said: “While older people will remember navigating prolonged periods of high-interest rates in the 1980s and early 1990s, over the last 15 years a whole generation of savers grew accustomed to managing their finances under very different economic conditions.

“As the market has changed so significantly in the last 12 months, learning how to make the most of a rising high-interest environment is critical to achieving your financial goals as quickly as possible.

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"It will also help you plan your future finances with greater confidence.”

Some of the tips include matching specific savings accounts with certain savings goals to maximise how much interest you can earn.

Interest rates offered on savings accounts vary significantly depending on the provider, how flexible the product is, and how easily you can access your savings.

However, easy-access saving accounts will generally offer a lower interest rate than notice accounts or fixed-term saving accounts.

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But a Cash ISA is different from other savings accounts because any interest earned is tax-free, making it an ideal choice for anyone saving for mid to longer-term goals and important life events like getting married or raising a family.

Other tips include considering investing in government bonds, which often see falling prices as the interest rates rise and so may offer great value, and a reminder not to try and time markets when it comes to investing.

Even when saving interest rates are high, it is historically proven to be the best way to offset the impact of inflation over time.

Top tips for making the most of the rising interest rates

Make a habit of regularly shopping around. In a high-interest environment, complacency with your personal finances can cost you dearly. With heightened competition, high-street banks are unlikely to provide the very best interest rates on the market so it's important to look into a number of providers and be prepared to move your money to maximise the interest you can earn on your savings.

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Don't forget to review your current accounts. You probably don't want to be changing your current account once a month, but, at least once a year, you should be checking the market and seeing if you can get value elsewhere. Some current accounts now offer interest on balances and cash back on everyday spending and banks also frequently entice new customers to join by offering cash/ cash equivalent rewards.

Match your savings accounts to the “time horizon” of your savings goals. The interest rates offered on savings accounts can vary significantly depending on the provider, how flexible the product is, and how easily you can access your savings. Easy access saving accounts will likely offer a lower interest rate than short-term notice accounts or fixed-term saving accounts. Therefore, you may be able to maximize the interest you earn on your savings by matching the term of your deposit with the timeframe of your goals.

Check whether having a higher balance in an account leads to higher interest rates. Some providers offer better savings rates for higher balances so it may be worth combining savings accounts to make the most of this, but make sure you check you're covered by FSCS protection (up to £85,000 per bank).

Don't be caught out by savings tax. We haven’t had to worry about paying tax on our savings for a very long time because rates have been so low but with rates having rapidly risen, millions more savings accounts are now liable for tax this year. With a Cash ISA you never have to pay tax on interest, plus any interest you earn in a cash ISA doesn't count towards your personal savings allowance, so if you'll earn a lot of interest you can protect more of it in an ISA.

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Don’t forget about cash in investment or pension accounts. Many people keep a cash balance in these accounts that isn’t yet invested, and your provider should be paying you a fair interest rate on these cash funds. Ask your investment/ pension provider how much interest they are paying on your cash and compare with other providers to ensure you are getting bang for your buck.

Find the right balance between cash savings and investing for the long-term. In a rising high-inflation environment, competitive interest rates on savings products have an important role to play in any robust financial plan. However, historically investing remains one of the best ways to grow your money over time and offset the impact of inflation.

Don’t forget about the impact of inflation. One of the biggest mistakes savers and investors make is forgetting about the impact inflation has on the value of their money. When the interest rate on your savings, or the returns on your investments, are lower than inflation, your money is losing purchasing power. While there’s no sure way to protect your money from the effects of inflation it's important not to stick your head in the sand, and always calculate your real returns (savings rate - inflation), so you take into consideration when tracking against your financial goals.

Don’t use higher interest rates as an excuse to try and time the markets. Not investing consistently was one of the most common financial regrets among those recently surveyed by Moneybox. Savings rates being higher can feel like a reasonable excuse not to invest but it’s been shown time and time again that market timing doesn’t work.

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If you want to grow your wealth for the long term, investing consistently is still your best bet. It may be time to consider annuities. If you are thinking about taking money out of your pension in the coming years, it may be worth considering annuities. Annuity rates move in line with interest rates and so are now more appealing than at any point in the last decade. An annuity is a guaranteed income for life bought with your pension pot so gives great certainty if you can achieve a good rate. Again, don’t forget about inflation when looking at annuities.

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