If you’ve not got any savings at the moment, you’re not alone. One in eight of us in the UK don’t have anything put away, according to research from National Savings and Investments, and a third of us don’t have enough money to cope with an emergency.
If you do have some money left over at the end of the month after budgeting, it’s a good idea to put that away regularly. Consider a small standing order into a separate account – you won’t even notice it’s gone, and it’ll be accruing interest. On average, people save 8% of their income every month – equating to approximately £100. If you can spare that after the necessary expenditure, then go for it.
And don’t delay. Start saving now – it’s the best time! Procrastination just means you lose out on interest.
Of course, then you’ve got to decide what kind of savings account to put your money into. You could just go for a cash savings account with your usual bank, but there are still choices to make and questions to ask.
Are you likely to want instant access to your savings, or will you be able to give notice of withdrawal? Some savings accounts limit the number of withdrawals you can make in a calendar year.
Some accounts require a hefty lump sum on opening. Can you afford to tuck that much away at once?
Some accounts need you to pay in a minimum amount every month – it can be something simple like £25, but other require a tad more. This is all linked to the sizeable interest rates available on the account.
This will probably be the thing you take most notice of. Shop around before deciding on one account, and though the interest rate should be considered, don’t let it be the only factor helping you to make your mind up.
Some banks offer a cash bonus for switching your banking to them; others offer you a higher interest rate if you have a current account and a savings account with them. Check the small print and weigh up the benefits.
Ah, the credit crunch and the collapse of various banks – how much you have scared us all! Of course there are no hard and fast guarantees about your bank’s future or interest rates or inflation, but your money could be protected by the Financial Services Compensation Scheme (FSCS) – you can check whether your savings account would be covered by logging on to the Financial Services Authority website (www.fsa.gov.uk).
If a standard cash savings account doesn’t quite strike your fancy, there are several other popular options that you might want to consider.
Cash ISA (Individual Savings Accounts): Most banks and building societies also offer tax-free savings and investment accounts called ISAs. If you are looking for a savings account and haven’t yet used your ISA allowance this tax-year then open a cash ISA – interest is paid tax-free. You can invest up to £5,640in a cash ISA every year. Because of the valuable tax-break, it’s best to keep your money invested in an ISA for as long as possible: as soon as you withdraw it and put it somewhere else, you’ll be liable for tax on it.
National Savings and Investments: National Savings and Investments (NS&I) are savings and investment products backed by the government. As a result, any money you invest is totally secure.
Bonds, or fixed interest securities: These offer a regular income – you’re basically lending money to the government or to companies, and receiving a fixed rate of interest over a set term. There are risks involved, of course, so you’d be best to speak to a financial advisor before you sign up.
Credit Unions: Credit Unions are mutual financial organisations which are owned and run by their members for their members who can save with them. Once you’ve established a record as a reliable saver they will also lend you money but only what they know you can afford to repay. Members have a common bond, such as living in the same area, a common workplace, membership of a housing association or similar.