TSB’s Head of Current Accounts, Marta Edwards, shares her tips on how to build your savings.
1. Start saving early, for you and your kids
When it comes to saving and growing your wealth, getting into good habits early is key as savings grow over time.
Saving little and often as early as possible can make a big difference – many banks now offer ‘round ups’ where they round up your everyday spending to the nearest pound and put the pennies into a savings account for you automatically. In doing this, you’ll save without even lifting a finger.
Are you able to make bigger savings but not sure how much to put away? A good rule of thumb is the 50/30/20 rule – which suggests you allocate 50% of your income after taxes on needs such as bills, rent and mortgage payments, food and transport costs, 30% on your wants like socialising and 20% to savings.
Think about setting up a trust or savings account in the name of your children. If you invest £50 each month, by the time they are 18 you could have a pot worth over £10,000, and that’s before any added interest.
2. Do your research on savings rates
Banks, building societies and credit unions offer a range of savings rates, that will typically vary according to how long you are prepared to lock your money away. Some savings accounts allow you greater flexibility to dip into your savings but that is likely to mean a lower rate of interest.
You will need to weigh up whether you can put money aside without touching it for a fixed period to get the best rates against how likely it is that you might need to access it.
Alternatively consider a mixture of money locked away for the longer term and some put aside in an account that pays interest but allows you to dip into it. Some saving accounts are designed around this and allow you to access money when needed, but with a reduced interest in the months when you take money out.
It’s easy to research rates on the internet and there are plenty of comparison websites that can help. Some savings accounts are only available online so when you choose an account you need to consider whether you will need to speak to someone or visit a branch.
3. Maximise your tax-free allowance
Basic rate taxpayers now pay tax on their savings if they earn more than £1,000 in interest, whereas higher rate payers pay when they hit £500*.
As a nation we’re poor at using our ISA allowance, but it’s one of the best kept secrets for growing your wealth whilst shielding it from additional tax costs.
As interest rates have improved, so too have the returns on cash ISAs, making them an even more lucrative investment.
The total amount you can save into an ISA for the year 2023-24 is £20,000. This could be in one account, or split across a range of accounts. By putting savings into an ISA you don’t need to pay income tax, tax on dividends and capital gains tax on it.
4. Play the long game and avoid get rich quick schemes
Wealth isn’t built overnight, and despite the adverts and claims you might see on social media, wealthy people have spent decades investing and saving to build their pots.
But thousands of people fall victim to investment and ‘get rich quick’ scams every year. When considering making investments, be on high alert for these 5 signs that it could be too good to be true:
- Promises of high returns at very low risk
- Unsolicited approaches by phone, text, and email
- High pressure sales tactics forcing you to make quick decisions you might not feel comfortable with
- Businesses with no website or which are not regulated by the FCA
- Contact details that are only mobile phone numbers or a PO box address
* And additional rate tax-payers (i.e. those paying the very highest rate) do not have a tax-free allowance on their savings.