Life-Saving Life Savings: Keeping Your Money Secure for When It Matters Most
08th January 2018
We're always being told we need to save more, and to start earlier doing it. Putting cash aside regularly in pension schemes, ISAs and elsewhere can be a solid investment in your future. It's not always easy to know how or where to start, though.
What's clear, however, is that we're going to be living, and working, longer than previous generations. It might seem barely worth it to save your money when the returns are so low. You'll be glad you did when those rainy days come, though. Here are a few key pointers for making the most of the cash you aren't splashing each month.
Look at your debts
The first thing to look at is any debts you've got hanging over you. Credit cards, car loans and mortgages are part of the everyday financial furniture of most households. So much so, in fact, that we often lose sight of what they're really costing us.
Right now, interest rates on most kinds of savings are pretty pathetic. By contrast, the cost of your debts is ramping up faster than your earnings from saving. That means you're better off paying down what you owe before socking your spare money away.
Watch out, though – there can be a catch here. Depending on the kind of debt you've got, lenders might be counting on you paying it off slowly. The longer you take, the more interest they get out of you. Because of that, things like mortgages often come with early payment penalties to weigh up.
Changes to Savings Accounts Rules
There have been some pretty major shake-ups in the way savings are handled in recent years. Before April 2016, for instance, interest on most savings accounts was taxed at the highest rate you paid (20% for Basic Rate taxpayers). Since then, however, that tax has been ditched – up to a point.
Depending on the highest rate of tax you pay, you can earn a chunk of untaxed interest. Basic Rate payers get £1,000 before paying tax, for instance. At the Higher Rate, the amount you can earn drops to £500 per year, though. If you're getting interest from other tax-free sources like cash ISAs, that doesn't count toward your limit. Any tax you do owe on your interest will come out of your PAYE tax code, or via Self Assessment if you're signed up for it.
Check your ISA allowance
Speaking of ISAs, remember to check if you've used your maximum allowance for the tax year. A lot of people miss out on this. The limit right now is £20,000, and it resets when the next tax year starts in April.
Of course, now that we all get a certain amount of interest tax-free, a lot of cash ISAs seem less useful. If you're earning enough interest to pay tax, though, make sure you're making the most of the ISA system. Even if it pays a lower rate than your savings account, it might still work out better after tax.
Top Tips for Savings Accounts
- Stay flexible.
Some savings accounts start out with great terms, but the benefits drop off over time. Be prepared to switch to another account if you spot a better rate, but keep your eyes open when you jump. Those perks might come with drawbacks of their own.
- Remember you're protected up to £85,000.
In the UK, the Financial Services Compensation Scheme covers your money against various banking disasters. Your savings are protected up to £85,000 for every institution you have accounts in. If you have more than this amount of savings in one bank or building society you may be better to put anything over that amount with another provider. This amount protected is per person, so if you have a joint account you both receive protection, meaning up to £170,000 is covered between you.
- Lock it away for a better deal.
If you don't need easy access to your money, a Fixed-Rate bond or similar product can work out better. You can't touch your cash until the agreed time is up, but the rates you get are often higher.
- Know what you want.
If you're saving for something specific, like your first home, there might be specific products designed just for you. The Help to Buy ISA, for example, gives you a 25% boost to your cash, up to £3,000, if you qualify for it.
Use our tax refund calculator to see how much you could claim back a tax rebate to help boost your savings. Whatever you're saving for, get in touch to see how we can help you grow and safeguard your money.