One size doesn't fit all, so it's fortunate there are many ways to make a decent return. Here are seven which you may never have heard of before.
Of course, you want to earn the best possible return on your cash, but with rates on ordinary savings accounts stubbornly refusing to recover, it's time for you to get creative. Here are seven unusual ways you can do just that:
1. Lend to people
Zopa has existed for several years, but I think many people still don't get it! Website Zopa removes the middleman, banks, by lending your money direct to other people.
To do well you need to keep watching the rates borrowers are willing to pay, but you can massively beat term savings accounts for a little risk and a bit of effort.
Zopa suits people wanting a regular income particularly well. Zopa isn't suitable if you might need your savings sharpish, nor for regular savers, because you must lend more than £500 at a time for the guarantee that your savings will be split between 50 borrowers. (Which is useful to manage the default risk.)
2. Offset mortgages
When you think of mortgages you think borrowing, not saving. However, since we typically pay more in debt interest than we earn in savings interest, it can make a lot of sense to reduce debt rather than earn interest.
Offset mortgages do this, because you can offset your bank balance and savings against your mortgage debt, reducing your interest payments. Use our offset mortgage calculator to figure out how much you could save with one of these deals.
This is good for regular saving and lump sums, but ensure you get a good deal in comparison to the rest of the mortgage market.
Ed Bowsher takes a look at Zopa, an interesting alternative to the high street banks
3. Back to basics
I know many of you have already cottoned onto the benefits of saving in a high interest current account, but I want to include it anyway for those readers who may have missed it.
Many current accounts pay more than savings accounts right now. The Santander Preferred In-Credit Rate account, for example, pays a top rate of 5% AER for one year, on balances up to £2,500. Just bear in mind that to earn this return you'll need to switch your existing bank account and move your direct debits to Santander. But, better still, you'll also enjoy a £100 switching bonus when you do.
Another great current account with a high interest is the Lloyds TSB Classic With Vantage account which pays a rate of 4% on balances between £4,000 and £7,000. What's more, if you have plenty of savings you can open up to three Classic accounts and earn the same top rate on all of them. So that's a return of 4% on up to £21,000 of your cash.
But, don't forget, to qualify for either of these deals, you'll need to fund the account with a minimum of £1,000 every month, and you must stay in credit.
4. Lend to companies
We've talked about lending to people via Zopa, but there's also an opportunity to lend to companies through corporate bond funds.
This is possibly the riskiest of the strategies that I'm writing about today, as the amount you'll earn depends on market conditions and the corporate bond fund manager's ability. What's more, there is a risk some of the companies will sink and fail to repay your loan. You'll certainly need a long-term plan in case you make a short-term loss. However, corporate bonds have a much longer track record than Zopa, which you may find reassuring.
5. Join a union
Credit Unions are not-for-profit organisations that care for members with a common bond, which might be your job or where you live.
They're best known for their ethics. Whilst the returns are usually small, those who save in credit unions can be sure their interest isn't earned from the profits of unethical products, but through reasonable loans to their peers. When you die, free insurance can as much as double your savings to your dependants.
These are typically good for regular savers. Search for a suitable credit union here.
6. Earn interest on spent money!
Continue to earn interest on money you've already spent by shopping using a 0% on purchases card. These cards charge no fees, so provided you pay the minimum each month, you don't use your card for anything else (e.g. balance transfers), and you pay off the remaining balance before the 0% deal ends, you've been borrowing for free.
You should try to put as much of your everyday spending onto the card as possible to free up the cash in your current account, which you then regularly transfer to a savings account, where it earns interest until you pay the card off completely at the end of the 0% introductory period. You can do this for 13 months with the new market-leading Tesco Clubcard Credit Card.
To find out more about this strategy - which is known as stoozing - take a look at The ultimate guide to stoozing.
7. Naughty ideas
Gambling and greed are number seven's themes. This one's a warning, not a recommendation!
Premium Bonds provide a lower return than easy-access accounts, yet they're not easy access. Also, the return is sporadic. Inividion finds the return over the long run has been perhaps 1%-2%, which sounds about right.
Unless you win a big prize, your return is going to be small. If you're punting for a big prize, it's better to buy a £1 lottery ticket each month and put your £1,000 of savings to more reliable use.
That was gambling. Greed is guaranteed equity bonds. They're disguised with different names, but the gist is you'll get, for example, 120% of the stock market's return over five years, and if the market falls you won't lose a penny. It's complicated, but Jane Baker explains just some of the worst catches here.
Get a best buy savings account from lovemoney.com
This is a classic lovemoney.com article which has been updated.
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