UK’s investment platform easyMoney notes that we are in the middle of a cost-of-living crisis and prices are increasing on just about everything we purchase so putting away extra funds into a savings pot might “not be at the top of your list, but it can be a financial life saver.”
When your automobile breaks down, the boiler stops working, or you lose your job it can “cause a huge upheaval to your life and your finances.” But having some money in reserve can “make a big difference,” the easyMoney team notes while adding that it can give you the option of “continuing to pay your bills rather than reaching for a credit card to cover them.”
easyMoney wrote in a blog post that inflation is soaring, “it rose to 5.5% in January, and is predicted to climb higher pushing up the cost of our everyday spending.” The Bank of England is also “under pressure to hike its base rate, which is currently set at 0.5%, as a response to climbing inflation.”
According to easyMoney, this means savings rates on most accounts are “dire at the moment.” But it’s still worth “finding the best interest rate you can find.” The firm added that if you have money in an account earning no interest, you should be “looking to move it somewhere else.” Even though interest rates are paltry, “the higher the interest rate the better.”
easyMoney goes on to ask what you might be saving money towards: “a house deposit, holiday, new car, your child’s university fees, or your own retirement?” Whatever goals you have in mind, it’s important “to write these down and have a rough idea of how much you’ll need for each.”
The firm pointed out that “knowing how much you want to save, and the reason for each savings pot, can be helpful when deciding which savings accounts are most beneficial to you.” Your holiday savings pot might be in “a short-term savings account, a house deposit could be in a Lifetime ISA (LISA), while your pension may be invested.”
As mentioned in the update, regularly reviewing these goals “is important too, especially given how quickly things can change in our lives.”
As noted in a blog post, a quick and effective way to add to your savings pot without even having to think about it is “by rounding up anything you spend money on.” Although this may not be practical or quick if you’re doing it manually, “several banking apps have the option of doing this for you.”
easyMoney also mentioned that each time you purchase something, the money can be “rounded up to the nearest £1 (or whatever figure you decide upon).” The extra pennies are then “moved automatically into a savings pot for you.” So, if you buy three coffees a week for £1.90, “10p will be rounded up and moved into your savings.”
easyMoney also noted that “having some savings set aside purely for unforeseen emergencies is vital, especially in today’s economic climate.” It means you have money “to hand for anything unexpected – be that a surprise bill or in the worst case, a drop in income.” It can “save you from reaching for credit, which will cost you a lot more.”
easyMoney also mentioned that you should aim to have “between three and six months of your usual income in an emergency savings pot, although anything you can put away will help.”
The firm further noted that you don’t have to “stick to savings accounts and ISAs for your savings pot. Many current accounts now offer interest paid on balances.” Although there are limits on this, and you’ll “usually only earn interest on a set amount in your account, it can be an easy way to increase your savings pot.”
The update also mentioned that your ISA allowance is “given to you every tax year.” When the tax year ends (on April 5) “it runs out and you can’t use it again.”
As noted in the update, it’s vital “to take advantage of this year’s allowance if you want to benefit from the tax-free savings.” For 2021 – 2022 the allowance “is £20,000 which you can put away into an ISA – be it a cash ISA, stocks and shares ISA, LISA, or IF-ISA.”
If all your savings are in one account, this “generally won’t be the best way to make your money work for you.”
easyMoney added:
“An emergency savings account is best in an easy-access account, where you can take the money out without penalty when you need it, yet these tend to have the lowest interest rates. You might want to also keep money in a current account paying interest, in a cash ISA fixed for a longer period to earn more interest, or you could look into investing.”
The firm also noted that investing your money is seen “as a long-term model and one of the best ways to earn higher rates of interest.” There are many different routes you can take here, and “the one you pick will depend on your income, savings, and attitude to risk.” With a regular account or an IF-ISA at easyMoney, for example, “you could get a target rate from 3.08% to 8.00%.”
For more details on this update, check here.
