Welcome to our series on understanding money. We hope this will help you make some headway into understanding, and getting a hold of your financial matters.So far, you’ve learnt about everyday money as well as budgeting… hopefully you have also been relatively successful in sticking to your budget over the last two weeks. Now is the time to graduate to the next level, and start thinking about saving money.
There are many reasons to save money on a regular basis. Even though we may have free (at the point of access) healthcare, schooling, and pensions in the UK, there are many things we still need to money aside for – a car, a wedding, a house deposit, a gap year, or a regular holiday. There are also annual expenses that we can save for, so they don’t sneak up on us – car insurance, house insurance, that kind of thing. Now, I know many people pay things like this per month, but there is often a charge to do so. If there wasn’t, I’d probably pay monthly too.
A Simple Plan
The simplest way to begin saving money, is to make it automatic. Treat it like a regular bill, which you MUST pay. In the UK, this is fairly easy to do with any bank account. You just set up a standing order to pay ‘x’ amount a day or two after every payday, and send it into a savings account. You can do this easily whether you use online, telephone, or branch banking.
Don’t worry too much about interest rates or inflation, as the point is that you have a bit of money put aside, which is especially useful if you have an emergency.
Once you get into the habit of saving regularly, and have built up a fair amount, you can then think about how to maximise the return on your money in terms of interest and making sure your money is not eaten away by inflation.
How to Earn a High Savings Rate
There are plenty of sneaky ways to earn higher rates of interest than the pathetically low rates most standard bank accounts and savings accounts offer. For example, the Santander 123 current account account pays you 1, 2, or 3% if you have £1000, £2000, or £3000+ in the account. It also offers you cashback on your household bills of, yes, you guessed it, 1, 2, or 3%. There is a monthly charge of £2, but this is more than covered by the cashback you’d get, even on very low bills.
Halifax’s reward current account gives you £5 per month, as long as you’re paying in at least £750 per month and fulfil a few other simple criteria. There are several other accounts that pay these higher rates of interest, e.g. Lloyds, TSB, and Nationwide all offer great deals. For more info, check out MSE’s page on the best bank accounts.
Switching your account these days is a lot easier than it was in the old days, nowadays, there is a seven day switching period. Of course, there may be the occasional problem, it wouldn’t be life otherwise. But basically, loyalty doesn’t pay!
Should I Save for an Emergency Fund?
My instinct is to say yes, although over the last year or so, I’ve discovered several bloggers out there who don’t have a traditional emergency fund. They keep a small amount, say 1-2 months expenses in an account, and the rest is in dividend stocks, mutual funds, or fairly liquid bonds (government bonds such as gilts or t-bills). The point of this is that their money is typically working harder for them when pooled with their other savings e.g. dividend paying stocks, than keeping the money in the bank. Here in the UK, since we are able to get some decent interest on money in the bank, it is not always necessary to have to pool your money with your dividend stocks in the short-term.
I think if you’ve got a family or a precarious work situation, or both, then it makes sense to have an easy access emergency fund, but just be aware, that it’s not a given. There are other ways to do things. If you’re sensible with money, then you’re probably wise to the effects of inflation eating away your return, and not saving in the first place. It’s better to have some savings that aren’t earning much interest, than to not have any savings at all!
Do you have any sneaky savings strategies? What’s your favourite bank account? Do you believe in emergency funds? Let me know, leave a comment below!
picture credit: bplanet/freedigitalphotos.net