Martin Lewis used the latest MSE weekly newsletter to urge people to check the interest they are receiving on their savings
Martin Lewis has explained three scenarios where saving may not be the best option for your money.
The MoneySavingExpert.com founder used the latest MSE weekly newsletter to urge people to check the interest they are receiving on their savings. But he also revealed that saving may not be a priority in certain situations.
For example, if you have an emergency fund of between three and six months’ worth of bills, and you have a pot of cash that you won’t need access to for at least five years, then Martin said you may want to consider looking into investing.
Investing has the potential to generate significantly higher returns for your cash, although there are no guarantees.
He said: “It’s worth considering putting some of the rest in a broad spread of investments (eg, a global tracker fund that mirrors the performance of a huge range of companies).”
Martin explained another scenario where saving may not be considered a priority, is if you have expensive debt to pay off.
In this case, you are usually better off paying off your debt first. Martin said: “Pay off a grand on a credit card at 25% APR rather than save at 5% and you’re £200 a year better off.”
The MSE founder also said it may be worth using your spare money to overpay your mortgage, rather than save, if your mortgage rate is the same or higher than you earn in savings.
MoneySavingExpert.com has a free Mortgage Overpayment Calculator to help you decide the best option.
If you do want to save, Martin flagged how you can currently earn up to 5% easy access or 4.88% fixed – but many people are still receiving lacklustre returns far below these rates.
Martin said: “The shift in the UK’s interest rate prospects means top savings rates have recently increased, with a strong set of deals paying over 4.5%.
“Yet many savers still leave their money at a paltry average 2%. Stop it! Make ’em pay for your business.”
If you’re a basic-rate taxpayer, you can earn up to £1,000 a year in savings interest every tax year – after this, you pay 20% tax.
Higher-rate taxpayers pay 40% tax when they earn more than £500 in savings interest a year. Additional rate taxpayers have to pay 45% tax on all their savings interest.
You do not pay any tax on savings interest that is accrued in an ISA account.
