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Regular Savings Habit
Why having a regular savings habit is important
Having a regular savings habit is vital for building a secure financial future. Make saving a priority by setting aside a fixed portion of your income. Ideally, set up a regular automated deposit into your savings account, timed to leave your account just after payday. Saving may be the last thing on your mind given the current financial pressures of the cost of living crisis. However, even a small regular contribution to your savings account will grow over time.
Aim to save at least three times your monthly salary in a rainy day or emergency fund. This is your safety net to help you cover any unexpected expenses without going into debt.
Shop around for the best interest rates on savings accounts so that you maximise the benefit of compounding interest growth on your money. Your piggy bank is for small change only, as, unlike a good savings account, they don’t pay interest. Take some time to read about the benefits of compounding interest and growing your money.
Savings accounts
There are several types of savings accounts to choose from, such as instant access savings accounts, which as the name suggests, allow you to access your savings at any time. If you have savings that you are unlikely to need for a while, consider a fixed-term saving account or a notice saving account, as these pay a higher rate of interest. They do have restrictions for accessing your money as they lock your savings up for a specified period. Certain saving providers offer a loyalty regular saving account that requires you to save an amount every month for a year, up to a specified maximum amount. These accounts enforce regular savings and in return offer above market interest rates. Compare the interest rates on offer across various accounts and financial institutions as they can vary considerably.
ISAs – Individual savings accounts
ISAs allow individuals to save up to £20,000 a year tax free, in cash ISAs or stocks and shares ISAs. For more information about ISAs, follow the link:
Types of saving accounts
| Types of saving accounts |
|---|
| Instant access savings: Allows deposits and withdrawals at any time. |
| Fixed term deposit: Savings are deposited for a specified period and no withdrawals are permitted during this period. The cash and interest are returned to you at the end of the fixed period. |
| Notice savings account: These accounts require you to give notice to the savings provider when you wish to make a withdrawal. For example, with a 35-day notice account, you will need to give 35 days’ notice, before you can access the funds. |
| Loyalty regular savings: These accounts are usually only available to existing customers of a financial institution. They pay a higher rate of interest than a regular savings account. Loyalty accounts usually have a fixed period of a year and require you to pay a fixed monthly amount up to a specified limit. You cannot access the money until the end of the specified period. |
Personal savings allowance
As a basic rate taxpayer (earning up to £50,270) you have an annual personal savings allowance (PSA) of £1,000. This means you can earn £1,000 of interest a year tax free. Interest above £1,000 is taxed at 20%. If you are a higher-rate taxpayer, your allowance is £500 for the tax year.
The financial services compensation scheme guarantees savings of up to £85,000 with each savings provider.
Stock market
You should also consider investing in the stock market, investing in funds, or buying individual shares. Investing in the stock market does carry risk as share prices can go up or down. This makes it a long-term saving option for money that you don’t and won’t need to access in a hurry. When you come to sell stock market shares and investments, you want to be able to do this when the stock value is high. Another consideration is the tax implication of saving and investing, and this is where a stocks and shares ISA (Individual savings account) comes in handy allowing you to invest tax free.
Want to learn more about investing in the stock market?
Use our future value calculator to see how a regular savings habit will grow your money with time and compounding interest
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