Ten ways to get a better return on your savings

Savings rates are looking pretty unattractive right now. If you've got some spare cash, check out these ten ways to make your money work harder.

I feel a lot of sympathy for savers these days. Getting a decent return on your cash is a whole lot more difficult in today's tough financial climate.

But, thankfully, you don't have to put up with appalling savings rates. You can still get a good return on your stash of cash, if you know where to look. Here are my ten top tips:

1. Shop around for your savings account

Of course you can do all sorts of weird and wonderful things with your money, but you'll probably need to keep some of it on deposit for emergencies, planned expenditure, holidays and so on.

There's no reason why these savings can't earn competitive rates. My advice is to always shop around for the top account, which you can easily do at the lovemoney.com savings centre. I like the ING Direct Savings account which pays a competitive rate of 3.20% AER. The account is instant access and allows unlimited penalty-free withdrawals, but the rate is fixed for a year. That's an impressive combination!

And don't forget inflation is low right now, which means today's low savings rates aren't as bad as they seem.

2. Choose a fixed rate bond

If you can afford to lock your savings up for a while, you can earn an even better return with a fixed rate bond. You can normally take out a bond over a term of one to five years, but I recommend you choose a short-term account. This way you'll limit the risk that your fixed rate will become uncompetitive if savings rates improve dramatically over the next few years. You could try the One Year Growth Bond from the Post Office which pays a rate of 3.85%.

3. Use your current account

Some canny savers are using market-leading current accounts as a better home for their cash than a traditional savings account. Did you know some of the best ones are still paying pre-credit crunch rates on a portion of your balance?

For example, the Alliance & Leicester Premier Direct account pays a whopping fixed rate of 6% AER for a year on balances up to £2,500 (while the rate is 0.10% on balances over £2,500). You have to pay in £500 a month, however, and transfer your direct debits over from your existing current account.

Alternatively, the Abbey Bank Account - Preferred In-Credit Rate account also pays the same great rate of 6% fixed for a year on the first £2,500 of your balance. (Once again, the rate is 0.10% on balances over £2,500). But you'll need to pay in at least £1,000 a month, and again, transfer your direct debits.

4. Use Save as you Earn (SAYE) or Sharesave

If the company you work for has shares listed on a recognised stock exchange then you may be invited to SAYE - or Save as you Earn. This is an employee share plan which gives you the option to buy shares at a discounted price. The great thing about SAYE is you can invest without risking your money.

You'll be able to save between £5 and £250 a month over 3, 5 or 7 years. If you complete the plan you'll also get a tax-free bonus.

Once the term has ended you have two options: One, use the money saved, plus the bonus and interest to buy shares in the company at the option price. Or, two, ask for your contributions to be returned with interest. Your choice will depend on which route would be most profitable for you at that time. Read more in The best savings plan in Britain!

5. Use your ISA allowance

If you haven't already used up your ISA allowance then it's almost certainly a good idea that you do. This is a great way to boost your savings with a tax-free rate.

I can't deny the rates on cash ISAs are pretty low at the moment, but don't let that put you off. It makes sense to gets as much money as you can afford (up to the maximum) into ISAs, so when the economic crisis is over and the rates improve, you'll already be in the perfect position to maximise your tax-free savings.

If you're feeling a bit more adventurous there's potential for an even better return by investing some of your savings in a stocks and shares ISA. But don't forget there is a risk to your capital if share prices fall.

6. Choose a cheap tracker

If you fancy somethign a bit more adventurous, index-tracking funds are a cheap and easy way of investing in the stock market without having to select shares yourself.

Here's how they work: Let's say you choose a FTSE 100 tracker. Your money will be invested in all the top 100 UK companies quoted on the index. If the FTSE rises the value of your fund will increase by a similar amount. But the reverse is also true when the index falls. The idea is that the performance of your fund matches the FTSE as closely as possible.

Like the sound of trackers? Then make sure you pick one with low charges. Some of the best have total charges (also known as a Total Expense Ratio) of 0.5% or less. Any fund more expensive than that is a rip-off!

7. Top-up your kid's child trust fund

If you're a parent and you have set-up a child trust fund for your kids, have you thought about using your spare cash to top it up? You can contribute a maximum of £100 a month or £1,200 a year. Again, there's the potential to beat today's low savings rates by putting the fund into an index-tracker instead. Here are some free guides to help you choose your fund. 

8. Invest in a pension

If savings rates fail to impress you, then why not use your cash to top-up your pension instead? One of the best things you can do to plan for your retirement is pump as much money into your pot as you can afford. Even better, you'll get tax relief back from the government on every pension contribution you make.

Just like stocks and shares ISAs and index-trackers, there's the potential for a better return than cash by investing in the stock market over the long term. But, of course, your returns can't be guaranteed.

9. Open a stakeholder pension for your kids

As well as topping up your own pension, did you know you can now open a stakeholder pension for your kids and invest into it from the day they're born? We all know the sooner we start saving in a pension the better. After all, giving a pension many decades to grow should work wonders for its value.

You can invest up to £3,600 gross a year, which is £2,880 out of your own pocket before tax relief has been added.

10. Give Zopa a whirl

Zopa is an internet-based peer-to-peer lending business which enables lenders to achieve attractive returns on their cash while borrowers can get their hands on funds at competitive rates. You choose the rate at which you want to lend money so the return you make is down to you. Over the last 12 months lenders have made an annual return of 8.1% (after fees but before bad debt). Borrowers are fully credit checked and risk assessed and you money will be spread across different borrowers to manage the defualt risk. Watch our video on Zopa to find out more.

Compare savings accounts at lovemoney.com.

More: How to protect your savings from inflation | Rate tarting is back!