Saving some of your income each month can help you plan for events such as birthdays or holidays. It can also help with emergencies and reduce some of the stress if you are facing a significant change in your everyday spending.
You can also improve your credit score by saving regularly, which can make it easier to borrow money if you need to at some point in the future.
If you have debts, it's usually better to pay these off before opening a savings account. The interest you have to pay on your debts is usually much higher than any interest you could earn from saving.
Set yourself a goal – research shows that people who set themselves a savings goal do better than those who don’t.
Work out how much you can afford to save each week or month. Our budgeting page will help you to do this.
- Speak to your bank about automatically transferring a set amount into your savings account each week or month or set a Standing Order to take money out of your account on payday. If you don't see the money, you won't be tempted to spend it.
Where to save
- Building Societies
- Credit Unions
- Post Office
Shop around for the best interest rates. You should be able to find a number of comparison tables online by simply searching 'bank account comparison rates'.
If you are struggling to work out where you can find the money to start saving, this video might give you some ideas where you can save £3 a day. Saving £3 a day would leave you with more than £1,000 in savings over a year.
Sometimes it can seem like banks are speaking a different language when it comes to savings accounts. Our jargon buster below will help you understand what your bank means by the following phrases:
- Interest rate
How much extra money you’ll earn on your savings is usually shown as a percentage. This is the interest rate. The higher the percentage, the more money you’ll earn. Different accounts pay interest at different times, which can make it difficult to work out which is the best to choose. The annual equivalent rate (AER - see below) can help you to understand this. Interest rates are also used to tell you how much you’ll have to pay back if you borrow money.
- AER (annual equivalent rate)
Different accounts pay interest at different times. Some pay monthly, others once a year. The annual equivalent rate (AER) allows you to compare the interest paid on different accounts over a year. The higher the AER, the more interest you’ll earn.
- Individual savings account (ISA)
An ISA is a type of savings account. It’s different from other savings accounts because you don’t pay tax on the interest you earn. Because of this, there are limits on how much you can save each year (from 1st July 2014, it is £15,000). An ISA may earn you more interest than other accounts because you don’t pay tax, although this isn’t always the case.
- Notice period and instant access
Some savings accounts give you more interest but, in return, you’ll be expected to tell your bank or building society before you can take money out. The number of days you need to give to notify them is called the notice period. This can vary from a few days to a year. If you take money out without giving the required notice you’ll normally be paid less interest. Accounts that allow you to take out money without giving any notice are known as instant access accounts.
- Term deposit
You have to agree to keep your money in a term deposit account for a fixed amount of time. You’ll usually earn more interest on these types of accounts, but you’ll need to be sure you won’t need the money sooner because you won’t be able to withdraw anything.
- Variable and fixed interest
Interest rates paid on savings can be fixed or variable. If the rate is fixed, you’ll receive that amount of interest no matter what happens. If the rate is variable, the bank can change how much interest it pays you. Most savings accounts come with variable interest rates.
If you want more information about savings or are unsure about the best place to save your money then contact Advice Services who will be able to discuss your options with you.