11 Jan Your savings account’s biggest enemy
Everyone seems to be talking about how you should be saving. Well, that’s easier said than done – in fact, 40% of Britons have less than £100 on their savings accounts. With costs of living increasing to worrying levels, putting some money aside can be very challenging.
We believe that it’s unexpected expenses that are the ultimate culprit.
Savings: two steps forward, one step back?
Unexpected expenses drain not only your savings, but also your hopes for ever achieving your financial goals. Ever saved up for that long-awaited holiday only to spend the money on a car repair? If so, you can probably relate.
It’s financially stressful when this happens, and pretty demotivating. Being forced to spend your precious savings makes an emergency even more painful than it would normally be, taking you right back to square one: financial insecurity. In fact, facing such a situation is so frustrating that one in five Britons admit to delaying a car-related expense until it steadily gets worse.
Not surprising really, is it? The prospect of an emergency taking away the money you saved by making all those sacrifices can be a rather depressing experience. On top of that, once something comes up and drains your emergency fund, even a minor mishap can lead to a financial catastrophe.
Such a situation can be very stressful, simply because you don’t know what else lies ahead. Many of us get tempted to put off dealing with an expense we weren’t ready for, just because there aren’t many ways of managing it. Saving money is nearly always the best solution, but the economic situation doesn’t make this very feasible.
Think about your own situation
For example, if you’re trying to get out of debt, saving money in a bank account instead of paying people you owe isn’t a very good idea. If you are saving for the future, it’s normally best to keep your savings in a high-interest account. This is because interest on savings only makes sense if your funds grow at least as fast as the prices of living essentials. But what if you want to access your money? Steer away from accounts that charge you high fees for taking money out in case of an emergency – some of the higher-interest savings accounts do this. With this in mind, also be careful when looking for flexible savings accounts. Some offer interest rates so miniscule that they practically become ‘losing accounts‘ after adjusting for inflation. We recommend finding a balance, but ordinary ‘regular saver’ accounts are best for most people.
Even if you’re a dedicated saver, the limited options for dealing with emergencies can make protecting those savings almost impossible. Overdrafts are popular ways to cover shortfalls from unexpected expenses. If you do choose to use an overdraft, make sure you understand how you’re charged as their pricing can be complicated. The Money Advice Service wrote a good guide to understanding overdrafts. Credit cards are another popular way to smooth out irregular expenses, but always try to avoid clearing borrowed sums using minimum payments.
Given the situation much of the UK is in, how can you build savings for a more stable future? We’re working on a way to protect you from the unexpected, helping you to keep the savings in your account safe and sound. Until then, here are our top tips:
- Try to set yourself a budget of less than what you earn each month
- Pay your debtors before putting money aside as savings
- If you do need to borrow, a quick search online can often show the best product for you
- Build an ’emergency pot’ of savings and keep it in a free-to-access account
- When you’ve got an emergency fund, start putting your savings in something that earns higher interest
- Check out savings apps like Plum, Cleo, Get Chip (or others) to get a better insight towards your finances