Top tips to make the most of your money

Managing money better was the number one new year resolution made in the UK
Managing money better was the number one new year resolution made in the UK
Dr John Steadman, archivist of Portsmouth History Centre based at Portsmouth Central Library     Picture:  Malcolm Wells

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With the festive period fast becoming a warm, fuzzy memory, many people are now taking a sobering look at their bank balances.

This year the UK’s number one new year resolution – made by 48 per cent of us, according to price comparison site GoCompare – was to cut back on excess spending and manage our money better.

And with 2011 marked by huge hikes in the prices of food, gas and electric bills, fuel and car insurance, it’s no surprise more and more people are resolving to try to make their cash go further this year.

Andy Creak, managing director of investment site rplan.co.uk, says: ‘The last year has presented most adults with a near-impossible juggling act, many trying to make cutbacks on a shrinking disposable income, whilst also trying to put money away to support the needs of family members.’

But getting your finances under control doesn’t have to just inspire feelings of dread. It can also be an opportunity to fashion a new, more robust savings regime.

Get the year off to a good start by kick-starting your savings with the following 10 tips – compiled with the help of Moneywise.co.uk – on how to make the most of your money.

1. Use your ISA allowance

The cash ISA limit for this financial year is £5,340 and any savings you put in before April 5 are exempt from tax, which means you’ll receive all the interest you earn.

The average ISA interest rate is 2.45 per cent AER – but you can earn considerably more or less depending on how long you want to tie your money away for.

2. Build up emergency savings

Before you lock your money away in a higher-paying fixed-rate account, it’s a good idea to try to build up at least three to six months’ worth of salary in an easy access account.

That way, you’ll have money you can get to easily in case of an emergency.

3. Loyalty doesn’t pay

Some banks offer bonuses to beef up their interest rates, but once they come to an end your savings rate could drop to next to nothing.

For example, Santander’s instant access account, which pays 3.10 per cent for the first year, drops to 0.5 per cent after that.

Keep a note of when bonus rates end so you can move your money to a better account.

4. Fix your lump sum

If you’ve got a spare stash of cash, it could be worth securing it in a fixed-rate account. These accounts offer better interest than those with variable rates.

However, many require a large deposit. Of course you won’t benefit from any interest rate rises but they are also a good way of locking away money that you don’t want to be tempted to touch.

5. Little and often

Not all of us are fortunate enough to have large deposits, but if you can save a minimal amount on a regular basis it will get you in the mindset of saving.

Regular savings accounts demand as little as £1 a month, so set up a direct debit to come out of your current account just after you’ve been paid.

6. Watch out for penalties

Some accounts have limits on the number of withdrawals you can make, while others will penalise savers for making withdrawals with a loss in interest. For example, HSBC’s online bonus saver pays 0.75 per cent interest, but this drops to 0.25 per cent after a withdrawal.

7. Look out for capped interest

Some accounts will only pay the headline interest rate if a saver deposits enough money into the account each month.

Take Aldermore’s notice savings accounts: savers must keep at least £1,000 in their accounts at any time to benefit from the higher interest – failure to do so will see the interest drop to 0.5 per cent.

8. Take advantage of preferential rates

Current account holders may be able to benefit from higher interest rates on their savings. Both HSBC and First Direct pay their current account customers eight per cent interest with their regular savings accounts.

Only HSBC customers with paid-for packaged accounts can take advantage of the eight per cent rate, but First Direct extends its offer to all current account customers.

9. Shop around

Shopping around is one of the most important money-saving steps you can take. This applies as much to financial products and utilities as it does to food and clothes shopping.

Comparison sites allow you to compare high street prices with those offered online.

10. Get a grip on your existing debts

Before you start saving, you need to pay off any existing debts, otherwise the interest you pay on your debts could outweigh any interest you earn on your savings.

To cut your monthly interest bill and clear your debts more quickly, considering shifting your credit card debt on to a card offering nought per cent on balance transfers.

This will give you an interest-free period – up to two years, depending on the card – to get on top of your debt.