Time to start looking at savings interest rates? Make sure that you don’t neglect your debt…

Savings interest rates from the major high street banks like Santander generally range between three and four percent at the moment.  Many people have been more concerned with dealing with outstanding debts than researching savings interest rates over the last few years, and this is entirely understandable.  The interest due on loans and other credit products always outstrips the savings interest rates on offer to retail customers, and so it makes sense to use any available funds to pay off debts as quickly as possible before considering savings interest rates.

On the other hand, if you have been organised, and perhaps lucky enough, to be able to transfer balances on to interest free credit cards, you may well be in a position to start putting some money away for that special holiday.  Before you start researching savings interest rates, make sure that you have planned a proper repayment schedule for your outstanding, balance transferred debts – a schedule that will see you clear the balance before the interest kicks in.

All interest free balance transfers are offered for a limited period only, after which you’ll generally pay significant credit card level interest.  This means that the repayment plan mentioned above is not only desirable but essential if the gains made by your savings plan are not to be wiped out by the interest on debts.

Alternatively, if you have managed to hold on to a decent credit rating, you may be planning another balance transfer at the end of your current interest free period.  Again, it is of course essential that you are able to make such a transfer to avoid high repayment interest when the interest free period ends, and so you should make regular checks of your credit rating if in any doubt before assuming that the next credit card application will be accepted.

Savings interest rates generally increase with the amount of time that you are willing to lock away your money.  For example, savings interest rates of around 4% can be on offer if you can tie up your money in a two year savings bond.  As with every aspect we’ve looked at today, planning from the outset is essential with fixed term bonds, as you’ll have to make sure that you won’t need your money before the bond matures if you want to receive the advertised interest.  The point of these bonds is that you commit your money, hence the reward of relatively high savings interest rates, and so early withdrawal of funds is usually penalised with a loss of interest, or possibly a delay in accessing the cash.

ISA savings options are tax free, meaning that the interest developed won’t be taxed as it is with non-ISA savings plans.  Bear this is mind when looking at the headline savings interest rates on offer for different products, as a lower ISA interest rate may still end producing more growth overall than an ostensibly  higher interest option, thanks to avoiding taxation.