Getting the most from your savings
We've been reading your qeustions and suggestions about your Online Business Banking and as part of our new regular newsletter we'll be trying to answer the most popular requests.
Before you begin
Work out your budget
If you’re thinking about getting into the savings habit, or you’re already a saver but feel that you’re not putting away as much as you’d like, it’s a good idea to make a list of your monthly outgoings and income and see where you could spend less and save more.
Pay off debt
Interest rates on debt (overdrafts, loans, credit cards) are generally higher than the money you earn on your savings so it’s a good idea to clear off any outstanding amounts before you get serious about saving. Using your budget calculations, set up a standing order to pay off this debt.
Step 1: Regular savings
Some savings accounts will give you a better interest rate if you commit to regular savings over a set period and you don't make any withdrawals.
Step 2: Savings bonds
A savings bond is effectively a savings account that lasts for a set period of time. Bonds usually offer a better rate than an instant access savings account, especially if you agree to commit your money for a year or more.
Step 3: Homeowner? Consider an Offset Mortgage
When savings rates are low, it can pay to look further afield so that your cash goes further. If you have a mortgage, you could use your savings more efficiently with an Offset Mortgage. The more you save, the more you could save on your monthly mortgage repayments.
- An Offset Mortgage works by using the balance in your linked savings and current accounts to reduce the mortgage balance on which you pay interest.
- This could mean you're saving more money in an offset plan than you would make with a savings account.
- Plus, you won't receive interest on the linked accounts so you won't be liable for tax on them either.
- Remember, your home may be repossessed if you do not keep up repayments on your mortgage.
Step 4: Cash ISAs and Stocks & Shares ISAs
With a cash ISA, you will get a better rate than other accounts as you don't pay UK income tax on the interest.
A stocks and shares ISA allows you to invest in the stock market. Stocks and shares ISAs are classed as being 'tax-efficient' as although your returns are free of UK capital gains tax, there are other taxes payable on your investment. As your money is invested in the stock market, the value of your investment will rise or fall accordingly so you could end up with less than you invested.
Stocks and shares ISAs usually fall into two types:
- Open-ended, which have no fixed maturity date, although they are designed to be held for the medium to long term (five years and longer). Their value at any particular time will always depend on how well the underlying investments perform, so if this has been poor it could be less than the original amount invested, irrespective of how long it has been held.
- Fixed-term investments, usually for five or six years. If you access your money early, you could get back less than you originally invested
Don’t forget, we are almost halfway through the ISA year so if you want to get the full value of your £10,200 allowance it’s worth thinking about it now.
Step 5: Consider investing
When interest rates are low, many people start thinking about a long-term investment.
Firstly, make sure you're prepared to tie up your money for at least five years and decide what you hope to achieve and how much risk you're comfortable taking. Remember that the big difference between saving and investing is that with investments you can actually lose money, since their value and any income they produce can go down as well as well as up.
If you feel you would like some expert advice on all your investment options, speak to an independent financial adviser.
For people who are comfortable with making their own investment decisions without advice, making these decisions will need some careful research so you may be interested in the help and support pages of our new Investments section.
We’ve got straightforward guides to:
We’ve also got interactive tools and plans for quizzes and videos over the coming months. With Investor Zone, that research needn’t be dull or daunting and you can find out about and apply for an investment online from the comfort of your home or office.