- Written by Kevin Peachey
- cost of living correspondent
When the prices of necessities like bills and food are rising rapidly, saving money can feel like a pipe dream.
But financial experts say it’s important to have some money set aside for emergencies.
And the interest being paid on some savings accounts now is better than we’ve seen in the past 15 years, so it pays to take the time to put your money in the right place.
Why is now a good time to save?
So the money we set aside has two meanings.
First, the returns (or interest) offered by savings accounts have improved, even though borrowing is more expensive. For example, if he finds an account that pays 5% annual interest, then if he saves £1,000 in a year, he will earn £50 in interest. As you save over the years, your lump sum will continue to grow in a process known as compound interest.
Second, the purchasing power of the money we save is being eroded by rising prices.
According to figures from the Bank of England, there are £268 billion in non-interest bearing accounts, mainly current accounts.
Experts say that by finding the right savings account for their money, people can benefit from rising interest rates and counter some of the downsides of rising prices.
It’s so hard to budget anyway, so why save?
High utility bills and food costs mean that many people don’t have enough money to last until the end of the month. It’s hard to find something to keep.
It is widely considered that if you have debt that needs to be managed, this should be a priority over saving decisions.
However, you can avoid deep debt by setting aside some money in an emergency savings fund on a regular basis. If your car breaks down or you need to replace your child’s school shoes, it’s better to have money on hand rather than renting.
It’s a good idea to save for Christmas and holidays throughout the year.
How do I start saving money?
The general advice is to take the time to review your finances, set savings goals, and start by saving small, manageable amounts of money on a regular basis.
What type of account is best for me?
Things can get pretty complicated here. There are a variety of savings products available, and which one is best for you will depend on your personal circumstances.
The most basic savings products are Easy access account. Interest rates tend not to be very high, but you can withdraw your money whenever you like.
Some accounts etc. fixed account or bond You pay more interest, but your money is locked in for a set period of time.
If you are just starting out, why not consider it? savings account, some of which are sold together with current accounts. Again, you may not be able to access your funds for a period of time, and if you start small it may take some time for meaningful interest to accumulate.
Also, notification account, you need to tell your provider in advance when you plan to withdraw money. Alternatively, you can waive interest and enter the prize draw instead. premium bonds.
If you can’t access your bank account, Credit union (credit union) Provides an opportunity to save. savings plan incentives Government offerings can encourage long-term savings. Especially for children.
There are many others, but with such a wide variety, shopping around is the best option. It’s not just about getting the best interest rate, but perhaps more importantly, finding the account that best suits your needs.
Anna Bowes, founder of independent website Savings Champion, says some savers can become stuck in ‘choice paralysis’, so it may be best to set deadlines when making decisions. says.
Thankfully, for all accounts summary box It provides an overview of the main features, so you’ll spend a little less time comparing them.
Will the bank continue to give me the best deal?
Absolutely not. Banks, building societies and other savings companies often advertise eye-catching headline interest rates. In some cases, these deals may only be available for a few weeks.
The best interest rate may only last for a year on the product, after which it may revert to a lower rate. Therefore, while being loyal may be more convenient, it does not necessarily provide the greatest benefit. That’s why it’s best to check old accounts that you set up years ago.
Indeed, banks are under intense pressure from lawmakers and regulators to ensure that interest rates, especially on easily accessible accounts, reflect the broader market and are not used solely to generate excess profits.
What are the tax and benefit implications?
All basic and higher rate taxpayers have a personal savings allowance. This means that her first £1,000 (or first £500 if she is a high-rate taxpayer) of the interest she earns on her savings will not be taxed.
Personal savings accounts, known as Isas, allow you to save up to £20,000 a year and the interest is tax-free.
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