SAVING

Savings 101

Nafeesa Jafferjee
June 19, 2020
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What is saving and why does it matter?

Saving means spending less money than you earn. Putting money aside is the first and most important step of financial health.

It’s different from a “saving account” because it describes the action of putting aside money, whereas saving accounts are just one of the tools you can use to start saving. No matter what you ultimately do with the money you save, it’s a habit you should start as early as possible. Even having a small amount of money set aside can help you avoid using credit and short term financing, and give you a sense of control and independence over your finances. 

Why save early?

Getting started with saving can often be the hardest part. It feels like climbing a very large mountain where you want to be rich and comfortable at the end of it but you really don’t know how to get there. You need to remember that money decreases in value over time. £1 today is worth more than a year from now, so getting started early and growing your savings is essential by earning interest on your money.


Saving is also kinda like going to the gym. 

It can be really soul crushing at the beginning but before you know it you have your own fitbit and you’re hitting that 10,000 daily step count. Savings is like any good habit - better to start early so it becomes part of your routine. A tip for habit forming - good habits are much easier to introduce than changing bad ones. If you feel that changing your spending habits is too difficult, every-time you make a guilty purchase move some money to your savings account at the same time and it will counteract your negative habit. 


Different types of saving accounts

A savings account is an account where you can put your money and earn interest. Where bank accounts let you pay for bills, purchases and withdraw cash, saving accounts have only one purpose - to earn interest on your money. Where you store your savings will determine how much your savings will grow over time. Typically saving accounts with higher interest rates have limits to accessing those funds (it can be locked or have withdrawal limits), but give you more returns on your savings. 

Here are the different types of saving accounts in the UK

  1. Easy access funds

Easy access accounts are exactly what you think, they are saving accounts you can easily withdraw money from your account without fees. This a great account for putting away emergency funds you need to access easily. 

  1. Notice accounts

Notice accounts demand you to give your provider advance notice when you withdraw your funds, which can vary from 30,60 to 90 days. Notice interest rates have fallen so it’s worth checking if you get the same return from more flexible savings accounts. 

  1. Regular savers

This is great for people just starting out and requires you to deposit money in your account every month. Different regular savers can vary a lot by their interest rates and how accessible your funds (limits to withdrawals) so keep that in mind when you pick the best one for you. Regular savers is a good way to earn more interest than an easy-access account if you can only deposit a certain amount every month instead of one large deposit.

  1. Fixed rate bonds

Fixed rate bonds are saving accounts that offer a fixed rate on your cash for a fixed period of time. This could be one, two or three years but the longer you’re prepared to lock your cash away the more you will earn in interest. 

  1. Cash ISAs

A Cash ISA comes in all the above types but any interest earned won’t be taxed. If you expect to earn more than £1,000 in interest it’s worthwhile. You will get taxed on the interest you earn above £1,000 from saving accounts and could lose up to 20-40% of your return. Cash ISA’s offer a way to earn interest, tax-free up to a limit. It’s currently set at £20,000 for the tax year (20-21)


There’s also some programs from the government that offer additional support:

Help to Save Scheme

This scheme helps low income earners who are claiming universal or working tax credits. It offers a 50% bonus up to £1200 over 4 years and you can save a maximum of £50 a month. It’s a great deal if you feel you are really struggling to save and want £1200 with no strings attached from the government. Learn more about the scheme. 


Premium Bonds

If you're feeling lucky - premium bonds might be something you can try. They are accounts you can put money into ( and take out at any time), where the interest rate is decided by a monthly draw. You buy £1 bonds that have an equal chance of winning so the more you buy the better chance you have of winning the interest rate. 

Ultimately it might not beat out a regular savings account but might be a chance worth taking!


Tips to Grow your savings


  1. Figure out how much you should be saving. The usual guide is 20% of your income but if that’s not possible you can save whatever amount you can. The goal should be to set aside a pot of at least 3 months of living expenses as an emergency fund and then set aside money for other goals. 
  2. Take the money straight out of your paycheck. Think of it as paying yourself and it will limit you from spending it. 
  3. Revisit your saving goals over time. It might be too early to think about buying a house or saving for retirement but you might feel different in a couple of years. 
  4. When you want to pay for something - don’t immediately reach for your credit card. Instead save up for a big sum amount, that way you’ll pay with the money you have rather than get it into debt. 
  5. Finally be patient with yourself. Think about the lump sum you’ll save at the end! Just visualising that amount of money in your account helps keep you motivated!

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