The amount of annual income people are putting away for a rainy day is falling, according to new research. So, if you’re struggling to put away funds, how can you get the most out of your savings?
People in most parts of the UK saved less of their income this year than last year, new data from Aldermore bank suggests. People in the East Midlands and Wales are putting away 9% of their annual income, seeing a slight increase compared to 2017.
At the bottom of the table was the West Midlands, which is saving 6% of its annual income – a fall from 10% the previous year.
If you’re putting away less than you were, but you want to maximise the amount in your savings account, follow our top tips.
1. Use budgeting tools
The first step to smarter savings is understanding where your money is going each month.
With the launch of Open Banking, which allows you to share access to your accounts via a secure data feed, there are more tools than ever which can give you oversight over your spending and saving habits.
We’ve rounded up some of the most popular apps to help you understand their features.
2. Save your change
A tried-and-tested savings tip is to throw you loose change into a jar. But a number of apps now offer a high-tech version of this, by rounding up every transaction you make to the nearest pound.
Both Revolut and Monzo offer features that transfer the difference between the transaction price and the next pound to a separate account. Starling Bank, meanwhile, has partnered with Moneybox to allow users to invest their ‘change’ from digital transactions.
You can read our in-depth review of this feature in our story on savings apps that round up your change.
3. Pay yourself a salary
One way to prioritise savings is to pay yourself a ‘salary’ into a separate account to use for day-to-day spending, shopping or entertainment. You can then pay your bills out of your main account, and whatever is left at the end of your pay cycle can be put into savings.
This allows you to put a cap on how much money you spend on non-necessary expenses each month. It can be especially useful if you’re paid monthly, for example, but would prefer to allocate your ‘fun money’ on a weekly basis.
Alternatively, you might find it helpful to work out a savings target, and put this away as soon as you’re paid.
Just make sure you set realistic targets, taking into account your monthly bills and expenses, and that you have access to cash if you need it in an emergency.
- Find out more: how to plan an effective budget
Earning the best rate
4. Lock away your cash
It’s important for your savings pot to be earning as much interest as possible. Price inflation means your money is able to buy less and less with time – so ideally, your interest rate would beat the rate of inflation, which is currently 2.7%.
The only accounts paying this much are currently longer-term fixed-rate accounts. These products generally require you to lock your money away for a set period of time – and the longer you choose, the better the returns.
If you need access to cash for unexpected expenses, you could consider putting a portion of your funds in a fixed-rate account and keeping a ‘rainy day’ fund in an instant-access account.
5. Consider a regular savings accounts
If you’re adding to your pot each month, a regular savings account might be right for you.
You’ll generally be required to pay in a minimum amount each month for a fixed period. The rewards can be high – the HSBC Regular Saver, for example, offers up to 5% AER on balances up to £3,000, though you have to have another account with them.
Some accounts won’t allow you to make early withdrawals, or will pay a lower interest rate if you withdraw early.
- Find out more: What are the different types of savings account?
6. Earn cashback
Some current accounts offer you the chance to earn cashback on your spending, which you can then add to your savings.
In some cases, you may need to pay a minimum amount into the account each month, or maintain a certain number of direct debits.
You can find out more in our guide to the best bank accounts for cashback.
7. Try your luck with premium bonds
As the nation’s favourite savings product, NS&I premium bonds offer you the chance to win cash prizes, instead of paying regular interest.
The current prize rate – meaning the amount a person of average luck can expect to earn – is at 1.4%. Each month, two lucky winners receive £1m jackpot, and millions more prizes are awarded, though the majority are a more modest £25.
All deposits with the NS&I are backed by the Treasury, meaning your savings are guaranteed up to the maximum investment – which for premium bonds is £50,000.
- Find out more: premium bonds
8. Opt for compound interest
When you’re opening a new savings account, check how the interest is paid.
For some accounts, the interest is paid away, meaning it will be deposited into a separate account. While this is useful if you want to generate an income from your savings, it means your returns won’t earn as much interest.
Alternatively, look for accounts that compound your interest payments, so that any returns are paid into the same account and earn interest at the same rate.
9. Claim back lost funds
There are currently billions of pounds sitting unclaimed in lost savings and bank accounts, including junior Isas opened by parents on behalf of their children.
If you think you’ve lost track of products in your name, you can trace them through mylostaccount.org.uk.
You can find out more in our guide to tracing lost bank and savings accounts.
10. Earn interest tax-free
Previously, the only way of earning interest tax-free was by depositing your cash in an Isa. For large balances, this may still be the best option, as you can deposit up to £20,000 per year into the Isa wrapper.
Since April 2016, however, you can also take advantage of the personal savings allowance. This allows basic-rate taxpayers to earn up to £1,000 interest tax-free and higher-rate payers to earn up to £500 before tax. If you’re an additional rate taxpayer, however, you won’t benefit from the allowance.
11. Get a £1,200 boost with Help to Save
This month, low-income earners were given a boost with the launch of Help to Save.
This initiative offers savers a 50p top-up for every £1 saved over a four-year period, with the total available bonus hitting £1,200.
To be eligible, you need to be entitled to working tax credit or claiming universal credit, although Crown Servants and members of the British Armed Forces (and their partners) also qualify.
12. Earn extra towards buy a home
If you’re saving up to buy a home, there are additional bonuses available to give you a leg up.
With a Help to Buy Isa, the government will pay you a £50 bonus for every £200 you save towards a house deposit – effectively a 25% top-up. You can save up to £12,000, meaning the maximum available bonus is £3,000.
Alternatively, you could deposit into a Lifetime Isa, which offers you £1 for every £4 you save for a property. You can contribute a maximum of £4,000 per year.
The Help to Buy bonus will only be paid at the point where you’re purchasing your first home, so you won’t receive the bonus if you withdraw for other reasons. For the Lifetime Isa, you’ll be penalised if you withdraw for reasons other than buying a house or reaching the age of 60.
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