Issue #005: Tired of earning ZERO interest?

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👋 Morning Money Gang,

I read the craziest statistic the other day that actually made me feel a little bit sick. There is over £250 billion stuck in accounts earning zero percent interest. ZERO! 0%! NOTHING! NADA! WTF is going on?

Just to put that into perspective, I’m currently earning 4.8% on an account that took me 7 minutes to open. If we stuck the £250 billion into those accounts, we would be earning £12 billion worth of interest each year.

That’s BILLION with a B!

Now do you get why I’m feeling a little bit queasy 🤢?

In order to do my bit to combat that awful statistic, I’m gonna share with you 5 options you can take with your cash right now if any of that £250 billion belongs to you!

📈1% Better Every Day

Let’s Start Putting Our Money to Work 💪

If you’re currently reading this and thinking to yourself:

“There are too many options; I don’t know what to do.”

Please understand the following: Doing something is better than doing nothing. Inflation is currently just below 7%, meaning that leaving our money as cash is the same as putting £7 in the bin out of every £100 you earn. So make the decision to move today!

One thing to note is that savings are a little bit like a See-Saw, with interest rates on one side and flexibility on the other. If you want lots of flexibility, you have to accept a slightly lower interest rate, and vice versa.

And with that, let’s dive in 🏊‍♂️

Easy Access Saving’s Accounts

The idea behind these is that you put money in, they pay you interest for holding your money in the accounts, and you can withdraw the cash whenever you want. This is a great option if you need to dip into this pot regularly, or if you’re not 100% sure you can lock this money away for any period of time.

One thing to note is that these rates are variable, meaning they can go up and down at any time (you will be notified). The great thing here is that you can then choose whether to stay with your current provider or move to a competitor who is now offering a better rate - the perks of having flexibility.

Best Current Options: Find them here (constantly changing, so I’ve linked thisismoney.co.uk tables that are constantly being updated)

Fixed-Term Saving’s Accounts

Unlike easy access accounts mentioned above, a fixed-term savings account requires you to lock in your money for a certain period of time. However, in return, you will receive a higher interest rate than with easy access accounts, and your money will be locked in until the end of that term. So, if you have some money that you are happy to lock away and are 100% sure that you won’t need to touch it, this could be the option for you.

At the time of writing, 1-year fixed-term accounts seem to have the most attractive offerings, but these rates are constantly changing, so be sure to refer to the live table linked below.

Best Current Options: Find them here.

Cash ISA’s

This is a bit like a savings account, but the money you earn is TAX-FREE. However, there are some rules that come with ISAs:

• You must be from the UK and over 16.

• You have a £20,000 limit per tax year across all ISAs.

• You can only pay into 1 Cash ISA per tax year.

Cash ISAs mirror normal savings accounts in the fact that there are fixed-term and easy access versions, but they typically have slightly lower interest rates.

Now I’m sure you have plenty of questions around tax and savings, so let me answer the most common:

1. How much interest can I earn before having to pay tax?

   • Basic 20% rate taxpayers can earn up to £1,000/year interest tax-free.

   • Higher (40%) rate taxpayers can earn £500/year tax-free.

   • Top (45%) rate taxpayers don't get any.

2. When should I consider a Cash ISA over normal savings accounts?

   • You already pay tax on savings interest.

   • You are near the limit where you'll earn enough interest to pay tax on interest.

3. Here’s a great way to calculate whether to stick with a savings account and pay tax or open a Cash ISA: Just take the Cash ISA interest rate and multiply it by:

   • 1.25 if you're a basic-rate taxpayer.

   • 1.66 if you're a higher-rate taxpayer.

   • 1.82 if you're a top-rate taxpayer.

Hope that made sense 😅.

Best Current Options: Find them here.

NS&I Premium Bonds

People in the UK love a lottery, and they also love to save. Mix the two together, and you get premium bonds, which are described as a fun way to save, with the chance to win tax-free prizes each month. Here's how it works:

1. You buy 'bonds' for £1, with a minimum purchase of £25 and a maximum of £50,000.

2. Each bond you buy counts as one entry into their monthly prize draw.

3. Prizes range from £25 to £1 million (with many amounts in between).

4. All winnings are tax-free.

5. The odds of winning are 21,000 to 1, with an annual prize fund rate of about 4.65%.

In other words, if you're happy to risk earning £0 in exchange for a chance to win £1 million, this might be for you. On the other hand, if you want guaranteed returns, try one of the options above (or below).

You can find out more here.

Investments

The final option I want to share with you is investing, but don’t stress; this isn’t going to be an entire guide. If you do want that, then check out this issue of the newsletter, which is exactly that!

Investing is a great option if you want to put your money away for at least 5 years (although longer is preferable). While exact rates of return aren't guaranteed, let me break down for you the average annual returns of the S&P 500 historically:

• 2022: -18.01%

• Past 5 years: 10.68%

• Past 10 years: 13.09%

• Past 20 years: 10.20%

• Past 30 years: 9.97%

• Previous 30 years (1963-1993): 10.66%

• 30 years before that (1933-1963): 13.37%

What can you take away from the numbers above?

Well, firstly, that 2022 was an awful year for the S&P 500. But, secondly, that even with a one-off bad year, the long-term returns have significantly outpaced anything that I have quoted in previous sections. Of course, past results aren't a guarantee of future results, so I leave any decision up to you!

👋 Outro

See You Next Week

Thanks again for reading another issue. I really want to make these as good as possible for you, so as always:

PLEASE HIT "REPLY" TO THIS EMAIL WITH ANY QUESTIONS OR TOPICS YOU WOULD LIKE ME TO COVER - I WILL DO MY BEST!

Till next time!

DISCLAIMER: None of the above is financial advice. This newsletter is strictly education and should not be taken as investment advice or a solicitation to buy or sell any assets or to make any financial decisions. Please be careful and always do your own research.