How to Make Your Money Work Harder

Why your money may not be working hard enough

Millions of UK savers keep significant sums in current accounts or basic savings accounts earning little or no interest. With inflation eroding purchasing power year after year, money that is not growing is effectively shrinking. Making your money work harder does not require taking enormous risks — it simply means being more deliberate about where you put it.

The good news is that even small changes to how you manage your cash can make a meaningful difference over time. Whether you have a few hundred pounds or tens of thousands, there are steps you can take right now to earn more from every pound.

Step one: review your current accounts

Start by checking what interest rate you are earning on your existing savings. Many people open a savings account years ago and never switch, even when rates have moved significantly. In the current environment, easy-access savings accounts are offering between 4% and 5% AER from competitive providers, while some current accounts pay nothing at all.

If your main savings are earning below 3%, switching to a better-paying account is one of the simplest and most impactful things you can do. The process is straightforward, and many providers allow you to open an account online in minutes.

Use your ISA allowance

Every UK adult has an annual ISA allowance of £20,000 in the 2025/26 tax year. Any interest, dividends, or capital gains earned within an ISA are completely tax-free, making ISAs one of the most valuable savings tools available.

Cash ISAs

Cash ISAs work like standard savings accounts but with the added benefit of tax-free interest. They are ideal for short-term savings goals or emergency funds where you want easy access and no risk to your capital. The best Cash ISAs currently offer competitive rates that rival or exceed standard savings accounts.

Stocks and Shares ISAs

For money you do not need for at least five years, a Stocks and Shares ISA offers the potential for significantly higher returns. By investing in funds, shares, or bonds within the ISA wrapper, all growth and income is sheltered from tax. Over the long term, investments have historically outperformed cash savings, though they come with the risk of short-term losses.

Lifetime ISAs

If you are under 40, a Lifetime ISA lets you save up to £4,000 per year and receive a 25% government bonus — that is up to £1,000 of free money annually. The funds can be used for your first home purchase or retirement. This is one of the most generous savings incentives available and should not be overlooked.

Maximise your pension contributions

Pensions offer unbeatable tax relief that makes them one of the most efficient ways to grow your wealth. Basic-rate taxpayers receive 20% tax relief on contributions, meaning it costs just £80 to put £100 into your pension. Higher-rate taxpayers get 40% relief, and additional-rate taxpayers receive 45%.

If your employer offers a workplace pension with matching contributions, make sure you are contributing enough to get the full match. Employer contributions are essentially free money, and not taking advantage of them is one of the most common financial mistakes people make.

Consider regular investing

You do not need a large lump sum to start investing. Many platforms allow you to invest from as little as £25 per month through regular investing plans. By investing a fixed amount each month — known as pound-cost averaging — you buy more units when prices are low and fewer when prices are high, which can smooth out market volatility over time.

Low-cost index funds and exchange-traded funds (ETFs) are a popular choice for beginners because they offer broad market exposure with minimal fees. A global equity tracker fund, for example, gives you diversified exposure to thousands of companies worldwide for an annual fee of as little as 0.1% to 0.2%.

Use your Personal Savings Allowance wisely

Basic-rate taxpayers can earn up to £1,000 in savings interest tax-free each year, while higher-rate taxpayers get a £500 allowance. Additional-rate taxpayers receive no allowance at all. Once you exceed your Personal Savings Allowance, interest is taxed at your marginal rate.

If you are a higher-rate or additional-rate taxpayer approaching your allowance limit, consider moving surplus cash into ISAs or Premium Bonds where returns are tax-free. This simple reallocation can save you hundreds of pounds in tax each year.

Reduce unnecessary fees

Fees can significantly erode your returns over time. Check what you are paying on any existing investments, pensions, or savings products. Common fee drags include:

• High fund charges — actively managed funds often charge 0.75% to 1.5% per year, while equivalent index funds may charge 0.1% to 0.3%
• Platform fees — some investment platforms charge percentage-based fees that become expensive as your portfolio grows
• Old pension charges — legacy pension plans from the 1990s and 2000s can have annual charges exceeding 2%, dramatically reducing your retirement pot
• Unnecessary insurance premiums — review whether you are paying for insurance cover you no longer need

Build an emergency fund first

Before focusing on maximising returns, make sure you have an adequate emergency fund in place — typically three to six months of essential expenses in an easy-access savings account. This safety net means you will not be forced to sell investments or withdraw from pensions at a bad time if unexpected costs arise.

Get professional advice

If you have more than a few thousand pounds to manage, or your financial situation is complex, a qualified savings and investments adviser can help you build a strategy that maximises growth while managing risk and minimising tax. The cost of advice is often more than offset by the improvements they make to your financial plan.

Nesto matches you with FCA-regulated advisers based on your specific needs — completely free and with no obligation. Get matched today to start making your money work harder.