Is your savings account the best way to store your cash?

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By Rachel Jones
Know Your Money Editor

The Bank of England's recent interest rate cut may have been heralded as a positive move for cash-strapped consumers in Britain, but for people who have been building up a nest egg, the cut saw a reduction in the interest earned on what they had stashed away. While it has been noted by various financial experts that fixed-rate savings accounts could ensure that Britons dodge any further rate reductions, they are quick to add that some lenders are taking their best deals off the market. Indeed, recent research by Alliance & Leicester has found that 13.5 million people have failed to save a penny during 2008. And 12 per cent of individuals who had built up a cash pot have spent it.

Commenting on the findings, Hetal Parmar, manager for savings at the financial services firm, says: "What's surprising is the number of people who still haven't put any money aside and aren't concerned about it.

"I would urge them to follow the example set by the majority by building a nest egg for themselves. This will provide a safety net during 2009 and beyond."

So what ways can Brits build up this financial cushion?

Stocks are high on the Christmas wish list

Over a quarter of people questioned by Lloyds TSB admitted that they consider a stock market investment as a suitable festive gift. Half of those individuals who are looking into dishing out the stocks for loved ones this holiday season believe that it is a present that represents value for money and will keep on giving, long after the last bit of turkey has been eaten. As such, over a third of Brits claim that they would spend more on a stock market investment because it could make their loved ones more money in the long run. And 46 per cent believe that shares are currently an affordable price and that now is a good time to boost their coffers for when the economy starts to look up.

Cheaper to buy property in 2009

If people are struggling to save their money where it can be easily accessed, investing in a property could be a wise move to make. According to Luke Bennett, founder and managing director of SW19, it will become cheaper for people to buy as banks will pick up their mortgage lending which those currently renting may take advantage of. Indeed, he says that there will be a 20 to 30 per cent increase in the volume of registrations next year. And contrary to other property experts who claim that house prices may not be set to rise until 2010, Mr Bennett said values should creep up by the end of next year. Some individuals, therefore, may want to be quick when researching the best mortgage deals in the new year.

Furthermore, according to Property Frontiers, savvy buyers are waiting for the market to bottom out before making an investment. However, they may want to take action now, after the company claims: "It is little wonder that so many UK analysts have commented [that] we may never see another buying opportunity like this in our lifetime."

But just in case

Some adults might want their money where they can see it and shield it away in an individual savings account (ISA). Martin Ellis, chief economist at Halifax, agrees with this option.

"The level of savings invested in ISAs varies significantly across the country. Everyone has an annual allowance of £3,600 to place in a cash ISA, which will earn interest free of tax.

"ISAs are the principal tax free savings vehicle for most people and provide an important tool for those looking to plan for the future, especially in the current economic climate."

And for parents looking for ways to boost their children's financial security, a festive payment into a Child Trust Fund could be the perfect present this holiday season. The Tax Incentivised Savings Association (TISA) says that this might be a more suitable present for youngsters, rather than spending money on gifts they might not like.

Tony Vine-Lott, TISA director general, says: "Parents are increasingly aware that having a pot of savings can give their children considerable advantages as they move into adult life."

Although many Brits might be making new year's resolutions to look after their finances better, those concerned about another interest rate cut or the temptation of dipping into a savings account may therefore wish to invest their cash in the above vehicles in the hope of reaping the rewards further down the line.

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