Possessing £2,000 in reserves indicates you are 60% less likely to get behind on household expenses and face a significantly diminished risk of encountering debt problems compared to someone with minimal or no savings.
This is the primary conclusion from an academic research that has revealed that in terms of the safeguarding benefits of savings, “£2,000 represents a crucial milestone”.
However, if this amount seems out of reach, the positive aspect is that even smaller amounts can have a significant impact: as little as £200 in savings can help mitigate the likelihood of experiencing financial challenges, according to researchers at the University of Bristol’s personal finance research center.
We all understand the significance of saving, and outlining specific figures might assist individuals in establishing a goal to strive for.
The research was initiated by the Building Societies Association to highlight UK Savings Week, which is ongoing until Sunday, aimed at motivating individuals “to cultivate improved savings practices, regardless of their starting point”.
Here are some of the more effortless methods to initiate or enhance your savings fund.
Make your money work more efficiently
It is estimated that hundreds of billions of pounds are held in current accounts accruing minimal or no interest. It’s essential to maintain enough funds in your bank account to handle bills and expenditures, but any surplus should be transferred to a savings account, where it can accrue interest.
To prevent the funds from piling up again, consider setting up a monthly standing order to transfer money into a savings account right after you receive your paycheck. Alternatively, at the close of each month, move the remaining balance in your current account into your savings.
Save small amounts regularly
You can save money almost unconsciously by utilizing a “roundup” feature or application.
Numerous banks and financial institutions, from well-established brands like NatWest and Lloyds to newer players like Starling and Chase, allow you to round up your purchases, generally to the nearest pound, and deposit the excess into a savings account. For instance, if you spend £3.60, £4 will be deducted from your account, with 40p transferred to your savings. Some services, like NatWest, allow you to multiply your roundups, sending two to five times as much spare change to your savings account.
The app-based Monzo offers a paid account that provides access to its “1p Saving Challenge,” which transfers 1p from your primary account to your challenge savings on the first day, 2p on the second, 3p on the third, and so forth. If you stick to it for a year, you’ll accumulate £667.95 and earn interest (currently at 3.5%) during that period.
Establishing a savings routine
Regular savings accounts typically offer some of the most favorable interest rates. In these accounts, you generally contribute a set amount each month for a specific time frame.
In many scenarios, you aren’t required to deposit funds each month, but they tend to be most effective when you do. For example, saving £50 monthly into an account that yields 6% interest would see you surpass the £2,000 threshold in just over three years, assuming interest accrues daily and remains consistent. Nonetheless, many accounts only maintain their advertised rate for one year, so you would need to open a new one after the initial year ends.
Often, maintaining an active current account with the bank providing the product is necessary. This applies to Nationwide, where the Flex Regular Saver offers 6.5% interest.
There are several regular savings accounts available that do not require a prior relationship.
Yorkshire Building Society recently introduced the 50 Pound Regular Saver account, which pays 6% interest, is open to all UK residents aged 16 and above, and allows deposits of up to £50 a month for a year.
If you maximize your contributions, at the end of the year you would have £619.50, including interest.
This account can be opened at branches, agencies, and online (the online option is called 50 Pound Regular eSaver).
Save a little, (possibly) reap big rewards
The prospect of winning a prize can add excitement to saving. NS&I premium bonds are the most recognized option available. When you purchase these, you are automatically entered into a monthly draw with a chance to win amounts ranging from £25 to £1 million, tax-free. The minimum investment is £25.
The significant drawback is that they do not yield any interest and are, therefore, more susceptible to inflation than other forms of savings. The prize fund rate – which reflects the total percentage of the investment paid to winners – currently stands at 3.6%. While there is a possibility of winning, there is no certainty that you will win anything.
Coventry Building Society has recently introduced the Sunny Day Saver (2), a flexible account yielding 4.3% interest that includes 11 monthly prize draws (the first draw is on 17 October). It can be opened with as little as £1 with no obligation to save monthly; however, for each month that at least £10 is deposited, savers will be eligible for a lottery to win one of 10 prizes of up to £500. Additionally, those who save each month for 11 months will qualify for an extra draw next summer with a top prize of £5,000.
Additionally, the Chip app for savings and investments has a Prize Savings Account where, instead of interest, you have the opportunity to win cash rewards on a monthly basis. Currently, the monthly prize pool stands at £75,000, including a grand prize of £10,000. Every £10 deposited earns one entry into the monthly lottery, though you must maintain an average minimum balance of £100 to be entered.
Take advantage of Help to Save
There exists a government-supported savings scheme known as Help to Save, enabling low-income individuals to earn a bonus of 50p for each £1 they save over a span of four years.
You can save between £1 and £50 each month (monthly deposits are not mandatory), with bonuses received at the conclusion of the second and fourth years, calculated based on your total savings.
The maximum amount you can contribute is £2,400 over the four-year duration (48 x £50), and the highest bonus you can earn from your savings in that time is £1,200.
This account is designated for working individuals receiving universal credit.
Utilize Isas for tax-exempt growth
The government establishes a cap on the total amount you can save in an individual savings account (Isa) or Isas each financial year – presently set at £20,000. The cash Isa is one of the primary types, and no tax is levied on interest gained in such an account. Cash Isas can be obtained from banks, building societies, and various other institutions.
Consider the lifetime Isa, which assists individuals in saving for their first home or retirement. Its significant attraction is the free cash provided by the government: theoretically up to £32,000. You must be 18 or older and under 40 to open a lifetime Isa. You can contribute up to £4,000 annually until you reach 50, with the government adding a 25% bonus to your contributions, capped at £1,000 per year.
Investigate forgotten savings
There might already be some savings awaiting you.
Various online tracing tools are available to help people reclaim lost or forgotten accounts.
A no-cost service called My Lost Account consolidates the tracing schemes from the banking body UK Finance, the Building Societies Association, and NS&I (National Savings and Investments) into a single platform, requiring only one application form submission.
If you suspect you may have some premium bonds but aren’t entirely certain, NS&I offers its own tracing service for your convenience.
