10 tips to set up and grow your savings pot
10 tips to set up and grow your savings pot
We’re in the middle of a cost-of-living crisis and prices are rising on everything we regularly buy so putting away extra money into a savings pot might not be at the top of your list, but it can be a financial life saver.
When your car breaks down, the boiler stops working, or you lose your job it can cause a huge upheaval to your life and your finances. But having some money in reserve can make a big difference. It can give you the option of continuing to pay your bills rather than reaching for a credit card to cover them.
Here we look at 10 tips to help you set up and grow your savings pot.
1. Find an account paying interest
Inflation is soaring, it rose to 5.5% in January, and is predicted to climb higher pushing up the cost of our everyday spending. The Bank of England is also under pressure to hike its base rate, which is currently set at 0.5%, as a response to climbing inflation.
This means savings rates on most accounts are dire at the moment. However, it’s still worth finding the best interest rate you can find. If you have money in an account earning no interest, you should be looking to move it somewhere else. Even though interest rates are paltry, the higher the interest rate the better.
2. Work out your financial goals
What are you saving money towards: a house deposit, holiday, new car, your child’s university fees, or your own retirement? Whatever goals you have in mind, it’s important to write these down and have a rough idea of how much you’ll need for each.
Knowing how much you want to save, and the reason for each savings pot, can be helpful when deciding which savings accounts are most beneficial to you. Your holiday savings pot might be in a short-term savings account, a house deposit could be in a Lifetime ISA (LISA), while your pension may be invested.
Regularly reviewing these goals is important too, especially given how quickly things can change in our lives.
3. Use an app to round up your spending
A quick and effective way to add to your savings pot without even having to think about it is by rounding up anything you spend money on. While this may not be practical or quick if you’re doing it manually, several banking apps have the option of doing this for you.
Every time you buy something, the money can be rounded up to the nearest £1 (or whatever figure you decide upon). The extra pennies are then moved automatically into a savings pot for you. So, if you buy three coffees a week for £1.90, 10p will be rounded up and moved into your savings.
4. Set up an emergency savings pot
Having some savings set aside purely for unforeseen emergencies is vital, especially in today’s economic climate. It means you have money to hand for anything unexpected - be that a surprise bill or in the worst case, a drop in income. It can save you from reaching for credit, which will cost you a lot more.
Aim to have between three and six months of your usual income in an emergency savings pot, although anything you can put away will help.
5. Current accounts pay interest too
You don’t have to stick to savings accounts and ISAs for your savings pot. Many current accounts now offer interest paid on balances. While there are limits on this, and you’ll usually only earn interest on a set amount in your account, it can be an easy way to increase your savings pot.
6. Use your ISA allowance
Your ISA allowance is given to you every tax year. When the tax year ends (on April 5) it runs out and you can’t use it again.
Therefore, it’s vital to take advantage of this year’s allowance if you want to benefit from the tax-free savings. For 2021 - 2022 the allowance is £20,000 which you can put away into an ISA - be it a cash ISA, stocks and shares ISA, LISA, or IF-ISA.
7. Don’t put all your eggs in one basket
If all your savings are in one account, this generally won’t be the best way to make your money work for you.
An emergency savings account is best in an easy-access account, where you can take the money out without penalty when you need it, yet these tend to have the lowest interest rates. You might want to also keep money in a current account paying interest, in a cash ISA fixed for a longer period to earn more interest, or you could look into investing.
Investing your money is seen as a long-term model and one of the best ways to earn higher rates of interest. There are many different routes you can take here, and the one you pick will depend on your income, savings, and attitude to risk. With a regular account or an IF-ISA at easyMoney, for example, you could get a target rate from 3.08% to 8.00%.
However, with any kind of investing money isn’t as safe here as it is in a cash savings account, and there is always a risk you could lose it altogether.
8. Small and often
You may not have a lump sum to save and that’s ok - anything you can put away can help towards a future financial goal.
A regular saver is another option as they allow you to put a small amount of money away each month, and crucially earn interest on that cash. You can set the amount you want to save and change this as and when you need to.
9. Children’s accounts often pay better rates
If you’re saving for a child, or grandchild, always check out what interest rates are on offer for them. There are specialist accounts for those under the age of 18, including Junior ISAs (JISAs), and they sometimes pay a better rate than an adult account.
10. Don’t forget your retirement
It might be the last thing on your mind as you’re faced with daily reports of rising prices but it’s never too early to start thinking about your retirement.
You can check via the Gov.UK website what your predicted state pension will be, and how many years of National Insurance (NI) contributions you need to make to receive it. This will also give you an indication of how much more you may need in a private pension to live off when you stop working.
Remember if you’re in full-time employment and your employer has an auto enrolment pension scheme, they will match or sometimes beat your contributions.
Invest now at easyMoney.com (Capital at Risk)
All the facts and figures presented are accurate at the time of posting.
easyMoney is not a cash savings account. You may not get back the full amount you put in. Your capital is at risk if you invest. Peer-to-peer investments are eligible for an Innovative Finance ISA which is not a Cash ISA. They are not protected by the Financial Services Compensation Scheme (FSCS). Money invested through easyMoney is concentrated i n property and could be affected by market conditions. For the same reason, instant access cannot be guaranteed. We do not offer investment or tax advice.
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