Matching saving goals with products crucial for maximising returns

As interest rates remain low and the cost of living continues to rise, it’s important to get the most out of your savings. While many of us are diligently saving, if you haven’t chosen the right product with your goals and needs in mind, you could be missing out.

Despite figures from the Office of National Statistics (ONS) indicating that saving is a habit that’s falling out of fashion, a new survey suggests the average saver does build up their fund annually. The ONS figures found that the average UK household spent or invested around £900 more than they received in income in 2017, amounting to almost £25 billion. It marked the first-time annual outgoings outstripped income since 1988.

But a survey conducted by Charter Savings Bank suggests that, on the whole, people end the year with more than they started with; even when they raid savings.

On average, savers put away £2,906 but withdraw £924 of this for a range of purposes. While the figures signal a positive trend in saving, it also highlights why choosing the right saving product is important. One in eight savers raid their account every month and two-thirds make a withdrawal from their saving accounts at some point during the year.

  • On average, savers estimate they withdraw about a third of their savings
  • But 21% admit to taking out at least half of the total
  • Just 9% never touch their savings

The reasons for using money stashed away varied:

  • Purchasing big ticket items (30%)
  • Covering unexpected bills (27%)
  • For an emergency (25%)
  • Running out of money at the end of the month (12%)
  • Reaching their saving goal (6%)

For the most part, using your savings isn’t necessarily ‘bad’. After all, you may have been saving to cover unexpected bills or pay for a holiday in the first place. But it does highlight the need to think about where you save. An emergency fund that needs to be readily accessible should be held in a different product to a fund you’re building up to travel the world when you reach retirement age. Choosing the wrong product could mean you’re missing out on valuable incentives and interest.

Some accounts, including regular saving accounts, for example, may cut the interest you receive if you dip into your savings. As a result, separating your finances and holding multiple saving pots can be more efficient. It’s a move that can help you reach your goals too.

The way that you save should be tailored to your goals and the timeframe you plan to achieve them. While every savings strategy should be tailored, they can be broken down into four broad areas.

Emergency fund: An emergency fund should be built-up to help you cover the unexpected, from an unanticipated bill to a loss of income. Ideally, this should be between three and six times your monthly expenditure. This money should be in an account that is readily accessible should you need it. As a result, it’s unlikely to benefit from competitive interest rates.

Short-term savings: Covering expenses that you’re saving for in the short term, such as a city break or home furnishings, a short-term savings account is likely to need to be easily accessible. As with an emergency fund, interest rates are likely to be relatively low.

Medium-term savings: If you’re not going to need to use the money in the near future, you may want to consider using a fixed rate account. You won’t be able to access your money for a defined period of time, but the interest rates are higher as a result. If you’ll be contributing to your savings regularly, a regular savings account can also be beneficial.

Long-term savings: If you’re investing for the long term, you’ll have access to the more competitive interest rates. One place to start looking is ISAs (Individual Savings Accounts), as they are tax efficient. You can deposit up to £20,000 a year into an ISA. As you’re planning for the future, you’re in a position to lock money away for a longer period of time, boosting the rates you can choose from too.

Should you consider investing?

While savings are an important part of every financial plan, it’s just as important to look at other options too. If you’re at the point where you have a comfortable safety net built up in cash reserves, it may be time to consider investing.

With interest rates still low for most accounts, cash savings may actually be losing value in real terms. This is because inflation is higher than the returns interest rates are generating. Investing in stocks, shares and investment funds can offer an alternative that allows you to outpace inflation, albeit with added risk. Investing isn’t the right choice in all circumstances but it’s an area that’s worth thinking about once you have a good level of savings.

If you’d like support organising your finances, including savings and investments, please get in touch. We take the time to understand what your aspirations are and how your money can help you achieve these, picking out the right financial products for you.

Please note: The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

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