In the current climate with the government forcing down interest rates in order to get banks to lend money to each other and to customers again, for anyone who has any savings it’s a bit of a nightmare knowing what to do with them. Low interest rates are good for people who are borrowing money, but not so good for those who are savers of course.

With property prices on the decline, and so many businesses going into receivership now isn’t the time to be putting your money into property or into the stock exchange either. So where do you put it? How do you know if you put it in a bank it will be safe?

Of course the overall simple answer might seem that you don’t, but there are safeguards that have been put in place by the government to prevent people from losing lots of money if the bank they happen to save with does have problems. The scheme is called the Financial Services Compensation Scheme, and it covers the first £50,000 per person, per institute. This covers savings in banks and building societies, and also in cash ISA’s. This was brought in on 7th October 2008. The only really important thing to remember here is that this protection is per institution and NOT per account! So if you have more than £50,000 to save you will need to spread it around and make sure that you don’t have more than that amount in one institution. It’s also worth remembering that some banks with different names are part of the same financial institution, so you do have to be a little bit careful.

Ok, so now we know that up to £50,000 placed in one financial institution will be safe if that bank group goes under, which one do we choose? The simple rule really is to look at the interest rates as you’ve always done. They may not be good at the moment, but if you pick the best that you can get you’ll be doing the best you can for your savings. Remember to use your ISA allowance each year first because as a general rule of thumb ISA’s still carry the highest rate of interest earned because they are untaxed. But if you only have a smallish amount of savings and your earnings are very low, remember that you may not have to pay tax on your savings anyway. The way to work this out is to first see if your taxable income is less than, or exceeds your tax allowance (you can find your tax allowance out from your tax code). If it does exceed it, then you will pay tax on your savings. If it doesn’t, then go into your bank/building society and ask them what forms you need to fill in to show that you don’t need to pay tax on that year’s interest.

So in brief:

Step 1 – check out whether you will have to pay tax on your savings.

Step 2 – look at as many banks as possible and check out who’s got the best interest rates.

Step 3 – make sure that if you have more than £50,000 in savings you choose accounts in different institutions to split the money between so that it’s as safe as possible.

Step 4 – Review your accounts every 3 months and particularly for non-ISA’s move the money if somewhere else is offering a better deal.