In an environment of low savings rates, and with inflation rising, a better use for some of your savings could be to pay down any credit card debt you may have, says
moneysupermarket.com.
Only a handful of savings accounts pay enough interest to offset the effects of inflation, and with the average APR on a
credit cards creeping up, anyone with savings and an outstanding balance on their credit card could shave years off their overall term.
Moneysupermarket.com's calculations show the difference between the average interest earned on savings and the average amount of interest payable on the typical credit card debt is £308 per year.
Someone with an average outstanding credit card balance of £1,989 who repays just the minimum 2.5 per cent every month will take 22 years and 10 months to repay the entire balance, with an overall interest charge of £2,490.
However, repaying just £20 per month extra would slash this by over 17 years, meaning the balance would be paid off in 5 years and 7 months, and the overall interest paid reduced by over a third to £857.
Even repaying an extra £10 per month would halve the overall interest to £1,238, and take the repayment term down to 8 years and 7 months.
“Our calculations send a clear message to those who may also have some savings - simply by paying off a bit more every month, as little as £10 or £20, their overall interest bill and the length of time it takes to clear the balance entirely can be dramatically reduced,” said Peter Harrison, credit card expert at moneysupermarket.com.
"If you’re paying just the minimum amount on your credit cards then you should seriously review your situation. If you cannot afford to increase the minimum payment, then you should perhaps consider speaking to one of the free debt advice charities such as CCCS or Citizens Advice as they will be able to review your circumstances.
"Where savings rates are low, canny consumers can look at alternative ways to make their money work harder for them, whether this is through earning interest or reducing it elsewhere.
“Lenders are becoming increasingly choosy as to who they accept for a credit card so those people who are used to switching between 0 per cent cards could find themselves stuck on a relatively high APR when the interest-free period comes to an end. In this instance, it's important to clear that balance as quick as possible."
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