Having started saving you want to put it to work gaining interest but where’s best?
You have savings!
So you have worked out your budget and intend to save something every month but where do you put it? What is the best savings account for your money? It’s not going to be saved if you leave it in your every day bank account, been there done that as I am sure you have!
It can be difficult enough to make changes to start saving. Then you realise you’ve got more work ahead of you trying to find the right place for those savings.
Where do you put them, which account and what do you need to think about? For me, I like to keep things simple, the more complicated things get the less likely I am to do it.
What’s the choice?
Let’s presume you have £100 a month you want to save, the choices are endless:
- Your main current account
- Savings account with your current bank
- Savings account with another bank
- Cash Individual Savings Account (ISA)
- Regular savings account
- A piggy bank
- Under the mattress
On one level, it really doesn’t matter where you put your new savings, the most important thing is that you do save. However, let’s be realistic, you are unlikely to grow your savings easily with some of the choices above.
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Your current account
Believe me, you want to see your savings grow, to watch the number slowly get bigger. You are not going to get that by leaving it in your current account. It is highly likely that you won’t save at all as it will get swallowed up in your account and get spent.
Savings account with your current bank
A good choice, you already have a banking relationship with them. It is probably the easiest account to open online as you are unlikely to need to provide ID proof or even type in your name, address.
You should be able to see this account alongside your current account when you log on to your online banking. You can open a single or joint account.
Interest rates on standard savings accounts don’t tend to be as good as you can get elsewhere though.
Savings account with another bank
Another good choice and very easy to open online. You may be able to get a better interest rate on your new savings than that offered by your current bank. You’d need to complete an online application which will involve typing in name, address etc.
You might need to provide ID proof although often this is done digitally online, as long as you can provide details of your passport or driving licence. Occasionally you might need to upload a photo of your ID (it’s secure), it depends on the bank and their own processes.
Don’t let this put you off though as I promise it is pretty straightforward. You can open a single or joint account.
Cash Individual Savings Account (ISA)
Cash ISA’s are tax free so you keep all of your interest and don’t get taxed on it or even have to declare it to HM Revenue & Customs if you are self employed.
However interest rates are not great and if you are a basic or non-taxpayer you can now earn up to £1000 in interest tax free on normal savings accounts anyway. Being tax free is not a great selling point for most of us who have ordinary wages and small savings.
Opening a cash ISA is pretty straightforward. Similar to a savings account with another bank but you also have to provide your national insurance number. Accounts can only be in individual names, no joint accounts.
Regular savings account
These can be opened in the same way as other savings accounts but can have a couple of strings attached in order to get the higher interest they usually offer.
For example you might only be allowed one withdrawal per year or you might have to pay in a minimum of 11 monthly payments. Some regular savings accounts are very flexible though so definitely worth you looking at.
Your main bank may offer a regular saving account (mine does) which would make opening and operating the account very easy.
Put it in a piggy bank
Now I love a good looking piggy bank like many people and they can serve a purpose. But I am not convinced they are the right place for your new savings in this instance.
The main concern I have with piggy banks is they can be just too tempting to dip into with a promise to yourself that you will replace the money, and more, on your next pay day.
Also you can’t see your savings grow, although this could be a good thing. I think it can be important to see your total going up each month as an encouragement to keep going.
Put it under your mattress
This doesn’t even have the good looking appeal that a piggy bank offers so let’s just say no!
Best savings account for you
Once you’ve decided which type of account you want you then have a few more things to consider:
- Who is offering the best interest rate?
- Are you happy with online only access?
- Do you want a branch account you can visit?
- Are there any strings attached to the accounts you have short-listed?
Interest rates are so low at the moment that every extra ½% you can get is worthwhile and will give you a little more money at the end of the year.
Don’t do the hard work of finding the best interest rates yourself, there are websites that provide you with the latest information.
My favourite place to look is Moneysavingexpert. They have articles on the best accounts including regular savers, cash ISAs and even App based savings accounts. You can also search for best buy tables and the latest rates at Moneysupermarket.
Actions speak louder than words
Once you’ve decided where to save your hard earned money (remember, not the piggy bank!) you can crack straight on with opening the account.
You can have your account up and running within a few minutes, depending on how fast you type and which account type you choose. That’s the easy part done and dusted.
The harder part is saving each month and not dipping into those savings. Yes, that’s right, the idea of saving is to build up the savings, not to spend last months savings this month. The best savings account for your money is one that you will use to build up savings, not spend from every month.
Unfortunately it took me a little while to work that one out. But it is so worth it when you see your savings build up month on month. The longer you can go without touching those savings the stronger you will be at making the savings, win-win.
If you are really keen you can have more than one savings account, most banks let you have more than one savings account with them.
You might find it helpful to have say two accounts, one for your general savings fund and one for Christmas and birthday presents. Some people have 5 or more. They split their savings into clearly defined pots so they knew what savings goals they are working towards and how far they have to go to reach them.
Most banks let you name your accounts as well so you know when you log on that you are looking at your Christmas fund. This can make it a little easier to not dip into those savings.
The most important thing is to open a savings account that works for you and use it.
Now you have opened your savings account you need to get your savings into that account every month. The best thing you can do is to set up a standing order from your main current account into the savings account.
Set it for straight after you get paid, whether that is monthly or weekly. Don’t wait to see whether you end up spending all your wages, you know you will if you leave the cash in your account.
Out of sight, out of mind
Pay your future self first is a way of looking at it. The savings you want to make are for your future self whether that is next Christmas or you in the longer term.
Get the money out of your current account and away from temptation. Your future self will not appreciate you spending all your money now when you had great plans in the future for that money.
Keep the money habit going
Try not to look at your balance in the early months until your regular savings has become a habit. As the weeks/months go past and you don’t dip into your savings, you will feel stronger and more able to resist the urge to spend what you have saved.
If you feel you are wavering, just take a few minutes to think about why you set up your savings in the first place. For Christmas? If you spend now you won’t have the cash at Christmas. For your early retirement fund? You can’t retire and live on fresh air so you’ve got to ring fence those savings.
If you think you will be tempted to dip into your savings, open a regular savings account. These often have strings attached meaning you must save every month a minimum amount. You are also often limited in the number of withdrawals you can make.
If you exceed the withdrawals either the account gets closed or you lose the better rate of interest. You don’t want to go through the pain of opening an account only for it to be closed just because you were weak and dipped into it.
If you are aiming for early retirement you are going to need to save hard for a long time and not rely on just savings accounts.
But savings accounts get you into the saving habit. Once you have that habit then you will be ready to branch out further into investments and pensions. This post explains why you should not opt out of your workplace pension.
Don’t delay, open that account today!