8 essential tips for saving successfully
Due to the current low interest rate environment, making good returns on your savings can be difficult. Despite this, there are still a few things you can do to ensure that your money is not sitting idle in the bank. Here are my top 8 tips for saving successfully.
- Take advantage of tax benefits –
I am yet to come across anybody on God’s green earth who is excited when the tax man come calling. But whether we like it or not, tax like rain will always come. However, the personal savings allowance introduced by the UK government in 2016 means that if you are a taxpayer who fall under the basic rate category, you can earn as much as £1000 interest from savings in one year without having to pay income tax. This also includes current accounts and peer to peer. Higher rate taxpayers can only earn up to £500. Additionally, if you own investment outside of your personal savings account, you are entitled to £2000 a year in tax free dividends. With this system, you can save up to £20,000 in a year using your ISA allowance without paying capital gains of income tax.
- Use fixed rate account for higher interest –
If you need a savings tool that provides a higher interest rate, you should consider having a fixed rate account. This account tends to have one of the highest interest rates although you will have to agree to leave your money untouched for a particular length of time. In fact, the longer you are willing to leave your money for, the more interest you will earn. There are several banks that offer about 1.86% AER for one year provided you are willing to open the account with a minimum of £1000. Remember, you can earn more interest as you prolong the duration of your fixed account however, try not to lock your money in a fixed account for too long in case interest rates rises and your money becomes tied to an account with a poor interest rate.
- Earn interest on your current account –
Current accounts are nowadays provides a better option compared to many of the savings account systems available. Apart from the fact that you will have easy access to your money when you need it, you will likely earn a higher interest rate. If you keep a steady high balance in your current account and are rarely overdrawn, then you may need to consider this system. There are several banks that offer some really good interest deals on your current account including a few that actually pay you to switch. You can check up some of these deals here.
- Pay off your debts –
Paying off your debts is one way to increase the amount of money you can save. Thinks about it – if you are you are earning less on what you save than what you are paying on what you owe; you are not doing yourself any favours. In fact, you are losing money hand over fist. A good idea is to use some of your savings to clear off what you owe. Then, you can start saving again on interest payments. Only remember to keep some spare cash handy in case of emergencies. Another trick is to save interest by transferring the balance on a credit card with outstanding debit to one with a lower interest rate and finding a way to clear the outstanding debt over the next few months.
- Move savings the end of bonus period –
A number of banks encourage opening of savings account with short term bonuses that usually stop at the end of the first year. This bonus usually comes in form of higher interest while it lasts but at the end of the term, the interest drops back to the normal rate. Once the bonus is no longer active, it is important to review your account so that you can determine if the account is worth keeping. If there are better offers elsewhere, you should move you money as soon as you can. In fact, with the competitive nature of banks, you are bound to get a better deal somewhere else if you can spend time to look.
- Operate an emergency fund account –
One of the reasons why people cannot save successfully is because they fail to plan for a rainy day. An emergency fund account provides a financial buffer for that period when you need funds in the event of an emergency. For instance, if you lose your job and you don’t have an emergency fund account, you will be forced to dip into your savings in order to keep up with your financial responsibilities. This will significantly hamper the growth of your savings. Operating an emergency fund using an instant access account will prevent this from happening. Unfortunately, the interest rate on instant access account is almost negligible. There are institutions that offer around 1.01% AER but even this can drop if you happen to make more than 4 withdrawals in a year.
- Use children’s savings –
Encouraging your children to set aside some money every month in the savings account has several advantages. These savings will come in useful in the future; it is also teaching them the culture of saving money. But even more than these is the fact that interest rates on children’s savings are on the high side. For example, certain banks offer as much as 4.50% AER per year for monthly savings between £10 and £100.
- Take advantage of allowable expenses -
Allowable expenses allows business owners and self employed individuals such as contractors, handymen and so on pay less on tax bills. The way this works, for every £1 you spend on business related expenses, you are eligible for 20p returns. For example, if you have to travel out of town for a business meeting, you can claim costs which will cover travel, feeding, drinks and even lodgings. All of which you will receive back 20p on the pound. While this may seem like a very small figure, imagine when this business related expenses are accumulated over the period of one year. It will result in a sizable sum of money that can add to your already growing savings.