Opening a savings account is a great investment for the future – ensuring that if your personal circumstances change abruptly you have a safety net available.
A Money Advice Service report found that only 4 in 10 adults had £500 or more in savings to cover unexpected bills, highlighting the importance of planning ahead. If you’re thinking about opening a savings account there are a few things you should consider before starting your research:
- What type of savings account is best? There are so many types of savings accounts available, but which one is best for you? Ultimately it depends on whether you’re looking for a long-term or a short-term option. Here’s a savings account breakdown of the benefits of both types.
- Remember the changes in Personal Allowance. Since April 2016, the new personal savings allowance (PSA) has meant that all savings interest is paid gross, without tax taken off. Basic rate taxpayers can earn £1,000 per year interest tax-free and Cash ISA’s, premium bonds and other tax-free savings interest don’t count towards that amount.
- You should try and pay off any debts before saving. If you have debts that need to be paid off, with interest on top, you’ll be better off paying those off before looking to commit money towards long-term savings. Pay off the very poor credit loans first, as the interest rate is usually higher. It is more cost effective in the long run. Ensure that you are not charged any early repayment fees for finishing your loan term early. If you’re having trouble paying off your debts, take a look at our debt advice page.
- Your current bank may not be the best option. For some current accounts, there is the possibility of higher rates of interest than with savings accounts at the same bank. It is worth shopping around for the best deal to see how much you could be saving.
- Make sure to plan your monthly budgets ahead. A Regular Saver allows you to build up a good saving account through higher rates of interest than your standard accounts. This only works if you are able to commit to a regular monthly deposit which can vary between £50-£100. If you plan out your monthly expenses, you can calculate how much you could save each month.
- Fixed savings for long-term success. If you already have a set amount of money saved and are willing to put money aside for the long-term, a fixed saver offers a higher rate of interest. However, you can’t access the money for a set period of time without large penalties attached.
Until you’ve built a savings account, you may have to rely on borrowing money from a lender or perhaps family and friends if you have an unexpected expense. With PiggyBank you can borrow up to £1000 loans with no guarantor needed.