How can you make your savings work for you?

Over the last few weeks there has been a significant increase in the number of people in the UK who are paying off their debts as opposed to building up further problems for the future. Many people seem to be happy to use their savings to reduce their debts but is this really a sensible course of action?

The truth is that savings rates in the UK are at best around 2%, unless you are prepared to lock in your money for a significant period of time, when credit card interest rates, for example, are in excess of 20%. If you consider savings account interest of around 2% and the potential reduction in future credit card interest payments then in many cases it looks like a "no brainer".

Every hundred pounds that you use to pay off your credit card debt is effectively saving you £20 in interest charges over a year as opposed to potential interest on your savings of £2 over the same period. However, you also need to take into account whether you may need some form of buffer in your savings account for the future because ultimately once you have paid off your credit card debt that transaction cannot be reversed - without taking on more debt at relatively high interest rates.