High street banks Barclays, HSBC, Lloyds and NatWest continue to pay savers as little as 0.50 percent on some accounts, MPs warned last week.
With inflation at 10.5 percent in the year to December, this is ravaging the spending power of people’s money.
Somebody who put £10,000 into a savings account paying 0.50 percent at the start of 2022 saw its value fall to £9,000 in real terms.
It is possible to get much more interest from a challenger bank, which offer savers better value.
For example, this one-year fixed rate bond pays a market-leading 4.17 percent, while Ford Money pays a fixed rate of 4.40 percent a year for five years.
Yet there is another way of making your money work a lot harder, without taking out a savings account at all.
If you owe money, you are likely to pay a far higher rate of interest than you will ever generate on cash or even the stock market.
For example, credit card companies routinely charge APRs of more than 20 percent a year.
Sainsbury’s Bank charges typical APRs of 22.9 percent once any introductory rate has expired, while M&S Bank charges 23.9 percent and the American Express Platinum Cashback Everyday card charges a thumping 28.1 percent.
It you have debts focus your firepower on paying them down before building up your savings, says Myron Jobson, senior personal finance analyst at Interactive Investor.
Too many credit card borrowers simply make the minimum monthly repayment, but that is not enough.
Somebody who borrows £2,000 on a credit card with an APR of 25 percent and only covers the 2.5 percent monthly minimum will pay an absolute fortune in interest.
It will take them a staggering 35 years to clear that debt during which time they will pay more than £5,000 in total interest.
Yet if they paid in an extra £100 a month they will clear the debt in just two years and cut their total interest bill to just £530, Moneysupermarket figures show.
Jobson said: “As debt interest far outstrips the savings interest, using at least some of your savings to clear your debts is a no-brainer.”
This does not mean you should empty your bank account entirely, as you need some cash in reserve for emergencies such as car repairs, boiler breakdown or any other unexpected bill.
It is a tricky balancing act, Jobson says. “It’s fine to have both savings and some debt, so long as long as you are keeping tabs on them.”
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When tackling multiple debts, prioritise those with the highest interest and charges, then move onto the next most costly, then the next, he adds.
Remember to keep servicing all of your debts, such as your mortgage, to avoid missed payment penalties or worse.
Homeowners who have paid off all their expensive short-term debts may consider paying down their mortgage, too.
Most loans now allow you to overpay 10 percent of your outstanding debt each year, and this can pay off.
Somebody who owed £150,000 on a mortgage charging four percent a year over a 25-year term who overpaid by just £100 a month would cut four years and four months off their mortgage term.
They would also save a staggering £17,082 worth of interest.
Mortgages are the cheapest form of debt and some who took out their home loan several years ago might still be paying less than two percent. In this case, their money may work harder in the bank.
In most cases, it won’t.
As the cost-of-living crisis drags on, debt is a growing worry. If concerned, seek free help from charities such as StepChange, Citizens Advice or National Debtline.