It’s always good to save money – regardless of how, where or why. But savings products are designed for different goals, so picking the right one for you could give you a helping hand. Understanding a little about the products available and how you can use them will help you make sure you’re using the right one for your money goals.
The biggest key to saving money…
Without a shadow of a doubt, the secret of saving money is getting into good money habits. This means working out all your committed, regular expenses (weekly, monthly and annual) and putting that ‘budget money’ to one side. This includes:
- Rent or mortgage
- Council tax
- Insurance (house/car/life/pet/medical)
By making ‘savings’ a regular monthly amount you are forming a great money habit. Remember to pay yourself first – put your regular savings amount away as soon as you get paid. Then set a budget for those little luxuries in life like eating out, new clothes, holidays, live music, trips to the cinema. Whatever you allow and can afford, set an amount, and stick to it. A budget that you set, is manageable, and you stick to is another great money habit.
Top tip for your budget!
Not all of your regular expenses will be bills and household costs, or even a monthly expense. Think of things that you know you will spend money on like birthday presents, Christmas presents and holidays. Work out how much you spend in total over the year and divide that by 12, then add that amount to your monthly ‘budget money’. This is another type of short-term saving and will help you build a pot of money to dip into for presents and holidays, so you don’t have a big expense in one month. This sort of planning also helps you to take advantage of savings on annual insurance policies instead of paying monthly. When you have big expenses in one month it can really knock your good habits off course, so plan ahead and get organised with your money.
Be sure you’re not wasting money…
No-one likes to waste money intentionally, but sometimes it can happen without noticing. There are a few tricks that can even help add to your savings pot – here are our top 5 tips for saving extra pennies every month:
- Review your debts. Whether it’s an interest free overdraft or 0% interest on your credit card – make sure you’re getting the best deal around.
- Check before auto-renewing. Whether it’s your car insurance, gas supply or mobile phone always shop around for a better deal – there are comparison sites for most common things.
- Cancel old direct debits – it could be an old membership for your kids gymnastic class or your unused gym membership. If you check your bank statements these won’t slip through the net.
- Be a savvy shopper – check for multi-buy deals, coupons and loyalty cards as all of these can save you heaps of money regularly.
- Look at subscriptions. Think about whether you’re making the most of the apps or other regular subscriptions you’re paying for. Also consider where ‘free trial’ periods are ending.
That’s the how, now here’s the where to save…
Once you’ve got a regular amount to save you need to think about what you’re saving for and where the best place is for your money. Savings products are generally aligned to short, medium and long-term savings. The timeframes work along these lines:
- short (less than 5 years)
- medium (5-10 years)
- long (more than 10 years)
You might want to consider using the following products:
- Instant access savings – for the short term
Just like a bank account, saving in this type of account means you don’t have to have a large amount to start with and you can get your hands on your money instantly. You’ll also be able to change the amount you save giving you complete flexibility. But the chances are the interest rate will be very low, so your money won’t grow and you’ll have to pay tax on any interest that you do get.
- Notice period savings – for the short term
You generally need a minimum amount to open a notice period account, once they’re open they work in much the same way as an instant access account, but you won’t have instant access to your money. You’ll have to wait until the end of the notice period before taking your money out. This could be anything from 30 to 180 days. So, if you need quick access to your money don’t pick this option.
- Regular saver – for the short to medium term
A regular saver needs you to commit to saving an amount of money each month in return for a higher interest rate. These are great if you have surplus money and don’t need to access it. If you do access your money you’ll jeopardise the higher interest payments for that month, quarter or year – depending on the terms of the account. There is usually a minimum and maximum monthly limit to how much you can save.
- Fixed rate – for the short to medium term
You’ll already need to have saved a reasonable amount to deposit – from £1,000 upwards. The interest rate will be guaranteed for a period of time; it could be 1 year, 3 years or many more. As soon as you open one you’ll know how much you will get back and when, but once you commit you won’t be able to take anything out or add more to it.
- Cash ISA – for the short to long term
You can save up £20,000 a year in a cash ISA, the reason there is a limit is because any interest you earn is tax-free! Cash ISAs have as many variables as the savings options above – you can find some with higher interest rates, but they usually need you to commit to a longer investment timeframe. You can also find instant access ones, but these generally have lower interest rates.
- Stocks & shares ISA – for the medium to long term
A stocks and shares ISA offers the potential for your money to grow through investments but only if you are comfortable with taking some risks with the amount you invest. You can put up to £20,000 a year into your stocks and shares ISA and any growth is tax-free, but your investments can go down as well as up. You’ll also pay an investment fee – just like you do on your pension, so make sure you know the charges that will be applied.
- Don’t forget the biggest long-term goal of all!
Of course, the biggest thing to save for is your retirement – as you’ll probably spend more than 20 years spending your pension. Your pension contributions are usually made before your salary hits your bank account, but it’s worth reviewing how much you’re saving and if it’s enough. There’s a lot to think about when saving for the future and it can seem overwhelming.