How can I get the most from my savings?

By Iona Bain
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Saved up a little extra cash but not sure what to do with it?

Here are the saving options available to you.

Regular Savings

Depending on who you bank with, you may be offered access to a regular savings account, with a high rate of interest. You will have to pay in a regular monthly amount, but that’s not a bad idea anyway. The catch is that it will only last 12 months, then you will be switched into a low-interest account. That’s the time to have another look at your options.

Quick Access

For money you want to work for you, but still be available for unexpected needs, an ‘easy access’ account is essential. A Cash Isa (Individual Savings Account ) will ensure you are paid a gross, tax-free interest rate. That means you won’t have to deal with the taxman in order to claim the new Personal Savings Allowance of £1000 of tax-free interest a year.  If possible, choose an Isa where you are allowed to withdraw and replace amounts without it affecting your overall annual Isa savings limit (currently £15,240 per annum). Many banks will not let you do this. To know more about ISAs and savings accounts head on over here.

Medium-Term

For cash you want to leave untouched for at least a year, there are savings bonds, or lending bonds.    Savings bonds from one up to five years should pay more than easy access accounts, and are available as tax-free Isa bonds.   Lending bonds are part of the alternative finance revolution, where you lend your money to an individual or a business for a fixed period, via a ‘peer-to-peer’ online platform such as Zopa, Ratesetter, Funding Circle or Landbay. They will pay a higher rate than savings bonds, and you are not protected by the Financial Services Compensation Scheme. But the bigger platforms all have sound risk policies and their own safety net funds. You can use your Isa allowance for this option too, through the Innovative Finance Isa, though not all platforms yet have final approval to offer it.

Homebuying

If you are saving for a deposit, the Help to Buy Isa, or from next April the Lifetime Isa, are no-brainers. For every £4 you save the government will actually give you £1. You have to use the cash for a deposit (it goes direct to a solicitor) and there are contribution limits of £200 a month over five years for the Help to Buy Isa and £4000 a year up the age of 40 for the Lifetime Isa. Shop around to find the best rates.

Longer-term

If you know you can afford to put a little aside for the longer-term at least five years and preferably more, then a Stocks and Shares Isa could be the answer.  You can find a menu of ready-picked investment funds, with differing degrees of risk, on do-it-yourself websites where you do not need to take any advice.  Make sure you can wrap the fund inside an Isa.  The contribution limit is the same as the Cash Isa (currently £15,240) and you can mix and match with cash up to this annual limit.  From next year the Lifetime Isa limit of £4000 will be added and take the total annual limit to £20,000.  The longer you are invested the better you can ride out the ups and downs in the market.  So if you are confident of say a 10-year horizon, don’t be over-cautious, as higher risk can bring significantly higher reward. But naturally higher risk can bring higher losses and the past performance is no guarantee of future returns.

DIY long-term

Many investment trust companies offer regular savings plans, enabling you to drip feed your cash into the stock market. Some have  one investment trust, others offer a choice, but the advantage is they are well-spread investments, with low costs, and they are typically focused on global growth which ought to bring long-term returns. You should be able to wrap one of these in an Isa too.

Another helpful way to save money is to become home savvy! As the cost of living rises while our salaries don’t budge an inch, getting switched-on about the savings that can be made in the home is a must. Click here to see how you can make simple changes or additions to your everyday life.

Pension

If you are in full-time work, you will be automatically enrolled into a pension scheme by your employer. It makes sense not to opt out of this, as you will always benefit from an employer contribution. It won’t be much at first, but it does rise over time. The important thing to know is that it can only be one element of your long-term saving, as the amounts being put away are not enough to create a big enough fund for your later life. If your firm still runs an above-average scheme, with more generous employer contributions and an option for you to pay in above the minimum, it could be worthwhile to do so.

Top takeaway

It's often hard to save anything out of your paycheck. So if you have, you’ve done well and you’ll want to be able to maximise that saving. The next step is to decide what you want from your extra cash, whether it be a deposit for your first home or saving for your retirement. Once you've decided, find the best place to save that cash where it will garner maximum interest while still giving you the financial flexibility you need.


 

By Iona Bain

Iona is the author of Spare Change, an inspiring, down-to-earth handbook for the compulsive spender, budget-phobe or anyone that just wants to improve their financial savviness. She writes regularly for the Times and Herald newspapers and has also appeared in the Telegraph, Independent and Daily Mail. When not writing, Iona loves writing and playing music - her songs can be heard at soundcloud.com/ionabain.

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