How to get in the savings habit, get the best interest rate and make sure you stick to it.
If you’ve been following these fix your finances posts over the last few weeks you’ll have a good sense of where your money is going and hopefully have also started reducing the cost of any debts. The next part is to focus on savings.
Savings might seem out of reach – various reports state most people don’t have much put aside, but there are some simple things you can do to help you get in the savings habit. Even managing to put aside £30 a month thanks to these tricks can make a big difference in 12 months time.
Work your way through each of these steps and you should be able to improve not just how often you save, but also how much money you make as a result.
1. Work out how much you can save and why
This is the first thing you need to do. Check what’s left each month after you’ve paid for the essentials, and work out how much of this amount you want to have for other spending and how much for savings.
It’s worth thinking at the same time why you are saving, perhaps even having a savings goal. This can really help motivate you.
2. Keep your savings separate to other money
If all your money is in one account it can be difficult to keep track of how much you’re saving up, and its easier for that money to be spent on everyday purchases. So set up a completely different account to store your savings.
3. Prioritise your savings
If you only save at the end of the month, you’re more likely to spend the cash elsewhere. Instead move the money immediately after payday into your separate account.
4. Pick the best account for you
This can be a simple savings account – but you won’t get much in interest like this. Likewise ISAs aren’t much use to most of us now because we can all earn a decent amount of tax-free interest in other accounts. Others can pay much more though. Here are a few options:
You want the highest interest
The best rates right now are with current accounts. You can have as many of these as you want with different banks, though individual banks might limit how many you can open with them. Right now the highest paying ones are:
- Nationwide FlexDirect – 5% on savings up to £2,500 for one year
- TSB Classic – 5% on savings up to £1,500
- Tesco Bank – 3% on £3,000 (you can open two accounts)
You don’t have a lump sum but want to save every month
I love a Regular Savings account. You can get as much as 5% interest on monthly deposits for 12 months, with the interest paid and account closed when it reaches the end of the first year. You can then set up a new account and start again.
You are limited as to how much you can save each month, usually around £250 or £300, but that’s great if you are gradually building up savings and you don’t need to access the money for a year. The highest paying Regular Savers at the moment, which also require you to have a current account with the bank are:
- First Direct – 5%
- Marks and Spencers Bank – 5%
- HSBC – 5%
If you’re not with any of the banks listed here or above it’s worth looking to see if there are other incentives, such as a £100 cash bonus, to get you to switch.
If you’re saving for your first home
Open up either a Help to Buy ISA or a Lifetime ISA. You’ll get a 25% bonus on savings, as well as the set interest rate, when you buy your first home – though do read up about the restrictions.
If you’ve got a lot of money
The options above don’t work for anyone with hefty sums put aside. If you don’t need to access the money then you should probably consider investing some of the money. It’s a risk, investments can fall as well as rise, and I’m no expert, so you should do plenty of research to decide if it’s for you.
Alternatively, you could look at an easy access account such as the one from Marcus, currently offering 1.5%. This is below inflation but better than you’ll get elsewhere.
5. Automate your savings
There are ways to make saving a lot easier too.
Set up a standing order to move your wedge of cash and you won’t forget to do it. This is really useful for regular savers.
You can also link your bank account to a smart app such as Chip or a Facebook Messenger bot such as Plum. They use algorithms to analyse your spending habits and decides how much you can afford to save. That amount is automatically moved into a savings account. Chip, in particular, is good as you can start off with 3% interest for the first year and earn as much as 5%.
Or you can see if your bank has a “top-up” feature. Banks including Lloyds and Monzo do this. When you spend money on your debit card, your account will round-up transactions to the nearest pound. So spend £1.30 and 70p will be moved to a separate pot.