Post brought to you by Shay Quincy.
Having some form of savings is a very sensible idea, as you never know what is on the horizon or when you might find yourself in need of an emergency fund. However, just like there are hundreds of credit cards to choose from, there are so many different savings accounts and ways to save. This can be bewildering to a first-time saver, so here’s what you need to know to get started.
Can I afford to start saving?
This is the very first question you should be asking yourself before opening a savings account. Take a look at your income and your outgoings, and if what you spend is more than you earn, then you possibly can’t afford to start saving right now. However, if you take steps to reduce your spending or boost your income, you can start to put a little away each month. If you earn a little more than you spend, this is roughly the amount you should start saving each month.
Choosing a savings account
There are a few different ways to save. You can open an instant-access savings account, which will allow you access to your money whenever you need to, or you can open a notice account. This account will require you to give some notice before you can access your cash, which can help you with saving as it discourages you from dipping into your emergency fund. There is another type of savings account called an ISA (Individual Savings Account), in which you can get tax-free interest on your savings. There are long-term fixed-rate ISAs and other savings accounts which offer better rates of interest if you agree to lock your money away for a period of 1 to 5 years.
The account you choose depends on how soon you will need to access your money – if you’re happy to leave it be, you can make your savings go further with higher interest rates. You should always compare different savings accounts from different providers thoroughly, just like you would compare credit cards, before settling on one account.
How much to save
If you want to have an emergency fund to fall back on should you need it, a general rule of thumb is to save enough to pay three major costs or bills (i.e. rent or mortgage payments, electricity and council tax). If you are saving for a particular goal, such as buying a new car, the amount you save is up to you.